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An $85 billion expansion of the iron ore industry in Australia will not depress the price of the crucial steelmaking ingredient because the major producers will simply curtail their outputs.
Martin Place Securities head of research Greg Burns told AAP the current wave of Australia-wide expansions that could effectively double current capacity of 465Mt to one billion tonnes by December 2016 will not have a downward effect on prices because the major producers will simply pull back on production to tighten up supply. Nor will some of the planned projects get off the ground, he predicts. Sky News reports:
‘It’s hard to get money at the moment, either equity or debt. So I just don’t think all the projects that are planned will actually see light.’
Mr Burns said the expected gap between production capacity and demand in 2016/17 was not a concern because the big miners would pull back output to keep supply tight and prices high.
‘I’m not terribly worried that we’re going to have an overrun of capacity and even if we do, they’ll just reduce the rate to match demand and won’t let the price soften too much,’ Mr. Burns said.
Meanwhile Australian and UK-based megaminer Rio Tinto Plc is on track to produce about 240 million tonnes of iron ore this year according to the company’s chief executive, MarketWatch reported today:
Tom Albanese told analysts during the company’s investor day conference that “we are on track” to produce 240 million tons of iron ore this year. “We are selling as much as we can produce at pretty much” prices that are set for the remainder of the year, he said.
RTT News reported Rio Tinto saying its iron ore production is expected to grow by 50 percent by 2015, despite concerns voiced by Rio today that customers are more cautious and physical markets are softer than they were six months ago.
On the demand side, voracious steelmaking demand from BRIC countries particularly India and China are likely to keep iron ore mines producing at capacity.
MINING.com reported this week that India’s steel demand is likely to jump by over 70% to 113 million tonnes by 2017 after growing by 36 million tonnes per year, with the infrastructure sector projected to witness investments worth $1 trillion. India’s total steel demand stood at 65.61 million tonnes during the last fiscal year.
In China, high iron prices have led the economic superpower to seek out new supplies, with The Australian reporting that China is increasing iron ore imports from countries outside the major producing regions of Australia and Brazil to diversify supply away from the three major players that dominate the sector — Rio Tinto, Vale and BHP Billiton.
