Iron ore will extend a drop through 2015 when an increase in seaborne supply that’s spurred a global glut is set to accelerate, said Goldman Sachs Group Inc.
While the growth in supply will probably moderate in the second half of 2014, the trend rate of growth in seaborne supply exceeds demand by a ratio of three to one, the bank said in a report dated today. Goldman kept its forecast for the steelmaking ingredient at an average of $80 a metric ton in 2015 from $106 this year.
Prices tumbled 29 percent this year as companies from Rio Tinto Group to BHP Billiton Ltd. (BHP) increased output, betting higher volumes will more than offset falling prices. Citigroup Inc., Deutsche Bank AG and Morgan Stanley see lower rates through 2016 as supply expands. Fortescue Metals Group Ltd. said last month that a $9.2 billion expansion to boost annual output to 155 million tons is complete.
“The shift to oversupply started barely six months ago and the adjustment phase is far from over,” said Goldman analysts Christian Lelong and Amber Cai. “Seaborne supply is set to accelerate again in 2015 while Chinese steel production growth slows further.”
Ore with 62 percent content delivered to Tianjin rose 0.1 percent to $95.50 a dry ton yesterday, according to data from The Steel Index Ltd. Prices dropped to $89 on June 16, the lowest level since September 2012.
Labor Dispute
While mining companies plan to boost shipments, a labor dispute over leave and wages threatens to disrupt exports through Australia’s Port Hedland, the world’s largest bulk terminal. Tugboat engineers intend to go on strike for four hours each time on Aug. 9, Aug. 11 and Aug. 13, according to Teekay Shipping (Australia) Pty., which is contracted by BHP Billiton Ltd. to run tugboats in the port.
This would mean that “half of the day’s shipping is lost,” said Ian Roper, a Singapore-based analyst at CLSA Ltd., estimating that the strike will disrupt about 2.2 million tons of supply. “That’s not a great amount. Fundamental wise, there’s still an awful lot of supply.”
Total shipments from Port Hedland dropped to 33.6 million tons in June from a record 36.1 million tons a month earlier, data from the port authority show. Exports to China were 29.2 million tons from a record 29.9 million tons in May, data show.
Source: Bloomberg
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