Supply pressure in seaborne iron ore market will extend into H2

Paragraph entered by Atlantic migration, in order for SteelFirst articles to display correctly on Metal Bulletin.

Major iron ore miners are expected to inject a further 60-75 million tonnes of iron ore into the market in the second half of the year. However China, the world’s largest consumer of seaborne iron ore, is losing its appetite amid a flagging property sector and overall slowdown.

Based on Steel First analysis, more than 80 million tonnes of new seaborne supply came into the market during the first six months of the year, up 19% on an annual basis. However, pig iron output in China, which is a more accurate reflection of the country’s demand for iron ore than crude steel output, went up only 0.6% year-on-year. 

“Though cheaper seaborne iron ore displaced some Chinese domestic ore supply, the overwhelming volumes of new supplies are adding pressure to the market,” a trader in Shanghai said.

Spot prices for iron ore into China have fallen sharply since the beginning of the year, as the market turns from balance to oversupply.

Metal Bulletin’s index for 62% Fe content iron ore was calculated at $94.65 per tonne cfr on Friday July 25, down 30% since the start of 2014. Prices have been below $100 per tonne cfr since May 19.

Supply surge
As prices fell, rather than slow down, miners such as Vale, Rio Tinto, BHP Billiton and Fortescue Metals Group (FMG), all accelerated their expansion plans to gain a bigger market share.

According to the graph below, projected output for the second half of 2014 from the ten major mining companies, is expected to be greater than iron ore produced during the first half.

Rio Tinto reached a full run rate of 290 million tpy in May, two months ahead of schedule, and its full-year shipments are expected to increase by 35 million tonnes.

BHP Billiton aims to fully ramp up its 35 million-tpy Jimblebar project by the end of 2014, half a year ahead of schedule.

FMG is also looking to increase its shipments by 30-36 million tonnes to 155-160 million tonnes in the 2015 fiscal year.

China’s crude steel output in the first half of 2014 gained 3% year-on-year at 411.91 million tonnes.