Australia, Brazil Seen Taking 90% of Worldwide Iron Ore Trade

By Jake Lloyd-Smith  Oct 15, 2014
Bloomberg
Australia and Brazil, the largest iron ore suppliers, will raise their combined share of global seaborne supply to 90 percent as they boost output and spur the closure of higher-cost mines, according to Macquarie Group Ltd.

The two countries are forecast to increase their joint share to 79 percent in 2015 from 73 percent last year, Macquarie said in a commodities report received today. The combined 90 percent share may be reached by 2020, the bank forecast.

Iron ore tumbled 38 percent this year after Rio Tinto Group (RIO) and Vale SA raised low-cost output in Australia and Brazil, spurring a global glut. Prices are seen staying weak for a sustained period as production increases and China’s economy slows, according to Tom Albanese, former head of Rio Tinto.

“Iron ore has proved itself to be an extremely efficient market -- as low-cost supply has become increasingly available, higher-cost marginal supply has made a hasty exit,” the bank said. “The dominance in supply growth from these two countries means they are making significant gains in market share,” it said, referring to Australia and Brazil.

Ore with 62 percent content delivered to Qingdao, China dropped 0.4 percent to $83.82 a ton yesterday, according to data from Metal Bulletin Ltd. The price fell to $77.97 on Sept. 29, the lowest level since September 2009.

The global surplus will more than triple to 163 million tons next year from 52 million this year, according to Goldman Sachs Group Inc. It projects an expansion to 245 million tons in 2016, 295 million tons in 2017 and 334 million tons in 2018.

Faltering Prices

Iron ore demand will be supported by further expansion in China as well as growth in India and the Middle East, Andrew Harding, chief executive officer of Rio Tinto’s iron ore unit, told reporters on an Oct. 9 conference call. Any move to cut output amid faltering prices would simply encourage competitors to expand production, said Harding.

Iron ore was listed by Morgan Stanley as its least-preferred metal after gold, according to a quarterly report on Oct. 8 that highlighted global oversupply. The raw material may average $100 a ton this year and $87 in 2015, the bank said.

The commodity is heading for “pitiless pricing with relentless supply expansions,” Credit Suisse Group AG said in a report received Sept. 24, paring price forecasts for next year and 2016. There’s too much supply, the bank said.

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