Iron ore price, page-996

Supply restraint drives iron ore

in Commodity News,Dry Bulk Market 30/12/2016

Supply discipline will be a major factor driving seaborne iron ore prices in 2017, after the world’s three biggest producers abandoned the aggressive expansion plans that have cost them billions of dollars in losses in recent years.
Brazilian mining company Vale and UK-Australian resources firms Rio Tinto and BHP Billiton cut a collective 70mn t from their annual output targets in the first half of 2016. The cuts, together with surprise upside in Chinese steel demand, stabilised iron ore prices in the second half of this year. Most bank analysts had forecast iron ore prices would end the year below $40/t on a 62pc Fe cfr China basis, forcing less competitive supply out of the market. But prices have instead nearly doubled since the start of the year, to above $80/t in late December.
The change in production philosophy was expressed by Rio Tinto chief executive Jean-Sebastien Jacques at the firm’s investor day in November. “If it means reducing the volume, we will do it,” Jacques said. “We are not driven by market share, we are driven by value.” Rio Tinto also said it no longer expect Chinese steel production to reach a peak of 1bn t in the next decade.
The newfound supply discipline of the three dominant iron ore producers has satisfied one of their biggest critics, US mining firm Cliffs Natural Resources’ chief executive Lourenco Goncalves. The boards of directors at the three companies made management changes that have shifted their approach and led to “some remarkable stability in iron ore pricing,” he said on the company’s third-quarter earnings call.
“No more race to the bottom. The Australian-Brazilian championship of stupidity is over. Check the box,” Goncalves said.
Goncalves and Australian iron ore mining firm Fortescue Metals’ chairman Andrew Forrest said in April that BHP Billiton and Rio Tinto were pushing too much iron ore into the market in an attempt to drive out competitors. Rio Tinto and BHP Billiton had defended their production strategies, saying they sought to protect market share that rival Vale would otherwise take through its own expansion.
All three major producers trimmed their expansion targets in the first half of this year and have taken further steps to manage output in the second half. Vale in October cut 20mn t from its 2017 output guidance through shutdowns of higher-cost iron ore production. And Rio Tinto announced a two-week shutdown of its Hope Downs 4 iron ore mine in late December ahead of what it expects to be a “very tough year” for the iron ore industry in 2017.
But supply discipline by the top three producers will not prevent smaller mining firms from pushing extra iron ore into the market, particularly if prices stay near current levels.
Indian iron ore fines and pellet have already returned to the market in force, with 9mn t exported in the April-September period. This is pressuring pricing for medium-grade producer Fortescue, which is itself able to increase volumes if prices stay high. And the 55mn t/yr Roy Hill iron project in the Pilbara region of Western Australia is expected to reach nameplate capacity in early 2017, further adding to supplies.