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Iron ore’s 20-year price run is likely to come to an end in the next three years, according to new data from Bloomberg, with a surge in supply set to knock $50 off the price of the crucial steelmaking ingredient by 2015:
Global prices may fall 29 percent to an average $123 a metric ton in 2015 from a record $173 this year, according to the median estimates of 10 analysts surveyed by Bloomberg News. The decline contrasts with estimates for little change in copper and a 10 percent increase for aluminum in the same period, London Metal Exchange futures prices show.
Quoting Goldman Sachs & Partners Australia Pty, Bloomberg says exports of iron ore will jump 53% in the next three years despite lagging demand from Chinese steelmakers, spurred in large part by a $22.4 billion expansion in the Pilbara, Australia’s iron ore heartland, by Rio Tinto and BHP Billiton.
The supply-demand imbalance will have an obvious negative impact on the profit margins of the Big 3 iron ore producers, Vale SA, BHP and Rio Tinto,which have all posted record earnings this year largely on the back of high iron ore prices.
As Bloomberg reports, “Rio said last month a 10 percent drop in iron ore prices will cut its annual underlying earnings by $1.7 billion and BHP said a $1 a ton decline in the price will reduce net income by $90 million for this financial year.”
Comments
Dan Oancea
It is what it is. Steel price goes down = construction prices go down as well and that might be good for economy.
Offer & demand. High prices stimulate development of new mines, expansions of old ones, infrastructure development but after a while offer catches with demand and we enter a new phase of equilibrium and somehow lower prices. But IMO it won’t last too long because one has to look at how fast the world’s population grows…they would all need metals.