Iron giants issue robust outlook December 04, 2013 03:36 PM
Some economists believe Chinese demand will support the Australian economy for longer than sluggish 2014 forecasts for the steel making commodity may suggest, a position also supported by sustained resilience in the iron ore price. Despite expectations that increased output and seasonal weakness would weigh down the price towards the end of the year, Iron ore remains at a healthy price ($US138.20 per tonne on Wednesday Dec 4) and has remained strong within the range of $US130 and $US140 per tonne in recent months.
Rio Tinto Limited (ASX:RIO) and Vale, the two biggest iron ore producers on the planet, have issued a robust outlook for Australia’s largest export commodity in the face of Chinese demand surpassing expectations at the same time Chinese domestic mines are experiencing rising production costs greater than other producing countries. Meanwhile, UBS forecasts are tipping that a 130 million tonne supply surplus of iron ore is set to arrive on the market in 2014, owing to production increases chiefly by Australian producers.
According to Michael Workman, a senior economist with the Commonwealth Bank, forecasts of a 10-20 per cent lower than current iron ore price are incorrect, given the price has retained higher levels than people had deemed possible. “The market tended to be sharply divided six to nine months ago on the outlook for China’s activity levels and the flow of data recently has confirmed that this year, and as it looks for next year, China will achieve its targeted growth rates. That’s been pretty assuring for the market,” Workman says.
Just this week, HSBC’s own take on the health of Chinese manufacturing showed output and total new orders increased at the fastest rate in eight months. Export tonnage is already up 20 per cent on a year ago for iron ore, according to CBA. “Iron ore is our single largest goods export now and will remain so for many years, so any shifts in the prices outside of the market views here do have an effect on people’s perceptions about the growth outcomes for the economy and the profitability of the major players,” Mr Workman said.
