25/04/14 – Iron ore price fears raise earnings alert
reemerged, forcing investors to place the earnings outlook for leading producers on high alert.
Prices for the key steelmaking raw material were sent sharply down on Monday and were lower again in Chinese futures trading.
Monday’s fall as measured by The Steel Index was USD 3.20 or 2.7% to USD 113.30 per tonne. The sharp fall comes just as the producers and investors had grown relaxed on iron ore’s near term price outlook after it had worked its way back from this year’s low of USD 104.70 on March 10.
The latest fall was put down to the rise in stockpiles at Chinese ports to near record levels, along with another easing of bans in India which have kept as much as 50 million tonnes annually off the seaborne market.
India’s Supreme Court lifted a ban on iron ore mining in Goa but restricted output to 20 million tonnes a year. It follows the lifting of bans in the biggest producing state, Karnataka, capped at 30 million tonnes a year.
The March 10 low for iron ore was reached after a shock one day fall of USD 9.50 per tonne or 8.3%. That lent weight to the growing number of analyst calls and a warning from BHP Billiton that a growing supply surplus would see prices weaken from the second half of this year.
Iron ore; Australia’s biggest export earner last year at USD 57 billion on government figures is already down substantially on last year’s (calendar) average of USD 135 per tonne.
According to TSI, the average for the year to date is now USD 119.80. On forecast Australian exports for 2013 to 2014, the lower prices represent USD 9.5 billion revenue hit for the local industry, with government taxation receipts also hit.
But the flipside of Australia’s surging supply is that the federal government’s chief commodities forecaster, the Bureau of Resources and Energy Economics, is predicting a 35% value lift in iron ore exports to USD 76 billion as the mining boom transitions from a price led to production led phase.
Lower prices, and the potential for the more bleak forecasts for iron ore to be arrived at in a hurry, could nevertheless check the scale of capital returns that BHP this year and Rio Tinto next year have been planning to shower on shareholders. The speed on the debt reduction plans by the third biggest producer Fortescue, would also be checked.