RESPECTED Westpac chief economist Bill Evans has offered some hope to the under-siege iron ore sector, predicting a healthy rebound in prices over the coming two years.
Speaking at the Good Oil conference in Fremantle yesterday, he broke from the negativity pervading the sector to forecast a rebound in prices to $US100 a tonne next year ahead of a “probable” surge beyond $US120 a tonne by 2016.
The price has already slumped by more than 35 per cent to its lowest level in five years, eroding — and in some cases wiping out — the profitability of Australia’s iron ore miners. The slump has been blamed on a surge in output from Australia coupled with a cooling in demand from China, the world’s biggest consumer of the commodity.
Mr Evans admitted China’s economy looked “pretty sick”, with both consumer confidence and the housing market at or near record lows.
House prices in 95 per cent of China’s 70 largest property markets were falling, he said.
“This is the worst the housing market has ever been in China.”
But importantly, he said, it was clear that the central government was beginning to adjust policy settings in order to rejuvenate activity in the housing market.
“At the moment it’s not moving fast enough, but I think over the next few months that you’ll start to see a more aggressive policy approach in China. We’re starting to see a lift in credit, we’re also starting to see fiscal stimulus.”
He said authorities were lifting property purchasing restrictions in a number of Chinese cities.
The positiveness from Mr Evans came as former BHP Billiton executive Alberto Calderon gave a bleak diagnosis for Australia’s iron ore industry, predicting prices will slide to a level at which many smaller Australian producers will struggle to make a profit.
Mr Calderon, who up until last year was the head of BHP’s aluminium and nickel division and was an adviser to BHP chief executives Marius Kloppers and Andrew Mackenzie, said yesterday at a Bloomberg conference that he expected the iron ore price to remain at between $US70 and $US80 a tonne for the next two to three years.
Those levels would likely lead to significant pain for a number of Australian iron ore miners, based on the latest production cost forecasts from Deutsche Bank analyst Paul Young.
Mr Young yesterday said that at an average price of $US84, Atlas Iron would produce its iron ore at a loss while the margins of Mt Gibson Iron and Fortescue Metals Group would drop to 4 per cent and 7 per cent respectively.
Under Mr Young’s forecast, however, heavyweights Rio Tinto and BHP would continue to generate healthy margins.
source: The Australian
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