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Print[Ferro-alloys.com]Australia’s major iron ore producers will soon come under intense pressure as supply overtakes demand, driving prices down, experts warn.
A supply surplus looms for the first time in at least a decade, weighing on the value of the nation's biggest export, according to investment banking giant Morgan Stanley.
Producers, including Fortescue Metals and Rio Tinto, are among a string of miners ramping up production, fuelling the likely surplus, while demand from China is slowing.
The price of iron ore has tumbled 14 per cent to less than $136 a mt since February.
Concerns about the outlook have weighed heavily on mining stocks.Shares in Rio, which generates about 75 per cent of its earnings from the key steel-making ingredient, and iron ore pure-play Fortescue slumped to a six-month low this week.BHP Billiton's share price hit a seven-month low. Rio and BHP have both launched cost-cutting drives.
Rio has put gold, copper and coal mines up for sale, as well as its Canadian iron ore operations. It also continues to review its diamonds division and Pacific Aluminium unit.
Morgan Stanley is tipping global iron ore exports to hit 1.17 billion mt this year - still short of forecast global demand of 1.26 billion mt.
But a surplus will emerge in 2014 as supply outstrips global demand by 3.3 million mt, the bank says. It estimates the surplus will blow out to 291 million mt by 2018.The surplus is being underpinned by a substantial rise in production, mostly from Australian mines.
Fortescue will increase its annual iron ore output from about 100 million mt to 155 million mt by the end of the year.Rio Tinto this week finished installing a new ship loader at its Cape Lambert wharf in the Pilbara, boosting its annual loading capacity by 55 million mt.
Brazil's mining major, Vale, is expected to add about 52 million mt to its annual capacity next year, while BHP will chip in a further 20 million mt.
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