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Hopes rise for iron ore price rebound Barry Fitzgerald THE AUSTRALIAN AUGUST 18, 2014 12:00AM Iron ore price chart A MODEST recovery in iron ore prices has raised hopes that prices for Australia’s biggest export earner can rebound to $US100 per tonne before the end of the year, easing the pressure on higher cost producers for radical cost-cutting and project deferments. Iron ore prices closed last week at $US93.40 a tonne, according to the Steel Index. While down from $US95.30 a tonne at the start of the week, the closing price was off the midweek bottom. Prices have slumped in a dramatic fashion since the start of the year, plunging by 31 per cent from the early January price of $US135 a tonne, which was also the average for (calendar) 2013. The average price so far this year is $US108.40 a tonne. Should it become the average for the full year, the local industry would take an $US18 billion revenue hit. But much of the impact on earnings is being offset by increased production, at least where profitable production is involved. That was reflected in the June half results of the lowest cost producer, Rio Tinto, which reported a 10 per cent rise in net profit from iron ore to $US4.68bn despite a $US974m revenue hit from lower prices across its increased production. Citi analyst Ivan Szpakowski has correctly forecast iron ore price moves in the past and on Friday reaffirmed his prediction that prices will rise to $US100 a tonne for the fourth (December) quarter. He expects increased supply from exporters to level off after surging in the June quarter, and for higher cost domestic Chinese production to close in a sub-$US100-a-tonne environment. The forecast is also built on an expectation that Chinese steel production will strengthen over the last four months of the year. Rio forecast that Chinese steel production — at 830 million tonnes a year — would grow by between 3 and 4 per cent in 2014. “Approximately 125 million tonnes of high-cost iron ore supply is expected to exit the market in 2014, as lower-grade producers from China and less traditional supply countries curtail production. This is expected to offset the impact of new supply to seaborne markets during 2014 from Australian and Brazilian producers,’’ Rio said. Rio chief executive Sam Walsh said there were signs of iron ore stabilising at around $US95 a tonne. “If you look at the forward curves for iron ore, the prices are holding at around that level through 2017,’’ Mr Walsh said. It has been a feature of the slump in iron ore prices that producers of lower quality ores have had to offer discounts beyond that implied by the lower iron content of their ores to secure sales. Mr Walsh said that was starting to hit a number of juniors. “We have seen 85 million tonnes of capacity already come off around the world year to date; we are expecting through 2014 that 125 million tonnes will come off.’’ “Prices will be what they will be, but personally I’m not expecting any major dislocation to the iron ore prices,’’ Mr Walsh said.