Sunday, July 10, 2016

Record Supplies, Rising Stockpiles Blight Iron-Ore Outlook

Iron ore shipments from the world’s biggest bulk-export terminal in Australia jumped to a record in June, helping push up stockpiles at Chinese ports and underpinning a flurry of predictions that prices will decline through the rest of the year.
Exports totaled 41.8 million metric tons compared with 39.4 million tons in May and 38.4 million tons a year earlier, according to data from the Pilbara Ports Authority. Cargoes to China were 34.5 million tons, also an all-time high, from 31.7 million tons in May and 32.6 million tons in June 2015.
After declining for three straight years, iron ore has rebounded 27 percent in 2016 after policy makers in China moved to bolster growth and its property sector rebounded. Further gains in low-cost supply, including from Roy Hill Holdings Pty, mean prices may fall through the end of the year, according to Citigroup Inc. and Clarksons Platou Securities Inc.
“Roy Hill continues to ramp up its exports after generally being a non-factor in the first quarter,” Jeremy Sussman, an analyst at Clarksons in New York, said before the data were released. “Given this, we expect Hedland exports to be up meaningfully in the second half versus the first, which should lead to falling ore prices into year-end.”

Price Swings

Ore with 62 percent content rose 0.2 percent to $55.17 a dry ton on Friday, according to Metal Bulletin Ltd. Prices swung from a low of $38.30 in December to $70.46 in April, the highest since January 2015.
Port Hedland is a maritime gateway for low-cost supply from the Pilbara region and handles cargoes from miners including BHP Billiton Ltd., Fortescue Metals Group Ltd. and Roy Hill. Shipments through the port represented 58 percent of Australia’s total iron ore exports last year.
Prices will probably decline in the third quarter due to weak downstream demand and continued strong shipping volumes from Australia and Brazil, Citigroup said in a report received on Monday. Expansions at producers, including Roy Hill and Anglo American Plc’s Minas Rio, could put pressure on medium-term prices, the bank said.
Rising port holdings in China point to ample supplies. Inventories expanded 1.9 percent to 104.5 million tons last week, the highest since December 2014, according to Shanghai Steelhome Information Technology Co. That’s the fourth weekly increase in a row, and the biggest gain since the week to April 1.
The predictions for a weaker second half from Citigroup and Clarksons tally with the views of other banks. Goldman Sachs Group Inc. said on June 15 that iron ore exports are set to climb in the next six months just as China’s demand for steel weakens. Morgan Stanley sees the raw material sinking to $35 in the fourth quarter, below last year’s trough.

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