Australia Cuts 2014 Iron Ore Forecast To $94.60/T As Supply Grows

Bareksa.com - Australia trimmed its forecast iron ore price for 2015 due to rising supplies, but still expects a rebound from current five-year lows as higher cost producers are forced out of the market.

Australia's official forecaster lowered its 2015 average price to $92.40 a tonne from $94.60 a tonne previously, well above this week's sub-$80 a tonne levels.

"Over the next five years, iron ore prices are projected to average between $90 and $95 a tonne," the Bureau of Resource and Energy Economics (BREE) said in its latest quarterly update.

"Further increases in supply indicate increasing price competition will be needed to push more high-cost supply out of the market over the next two years," BREE said.

The forecast is well below the $100-$120 a tonne forecast some iron ore miners used in forward price assumptions to support massive expansion work completed or in progress to inject tens of millions more tonnes into the sea-traded market.

Mega miners such as Rio Tinto , Brazil's Vale and BHP Billiton have been ramping up output despite concerns of an oversupply as steel output growth moderates in China, the world's biggest buyer of imported ore.

Benchmark 62 percent iron ore for immediate delivery into China fell below $80 per tonne for the first time in five years this week to $79.40, according to The Steel Index.

The China Iron and Steel Association said on Monday it expected iron ore prices to hover around $80 a tonne in the long term amid limited growth in China's steel output.

While steel production has increased in 2014, it has failed to absorb the surge in supply.

Credit market conditions in China have affected end-user demand for steel, leading to lower sales growth and higher inventory levels.

BREE predicted a number of higher cost producers, both in China and around the world, will be forced out of the market over time to reduce the oversupply.

China's domestic industry is fragmented, with miners in coastal areas suffering under some of the highest production costs in the country, but many state-owned mines have so far remained open.

BREE also lifted its forecast for Australia's iron ore exports in fiscal 2014/15 to 735.3 million tonnes from 720.7 million tonnes forecast in June. (Source: Reuters)