African iron ore to crunch prices: report Peter Cai, Peter...

African iron ore to crunch prices: report

Peter Cai, Peter Ker
April 23, 2012

Areas such as the Pilbara may feel the effects of lower iron ore prices that are created by an increase in supply from Africa.

THE record-high iron ore price is set to tumble over the next seven years as burgeoning supply in Africa hits the international market for the commodity, according to a new research.

A report partly funded by the federal Department of Resources, Energy and Tourism and authored by Australian National University economist Luke Hurst, predicts the current high iron ore price, at $150 per tonne is likely to fall back to around $80 per tonne.

If more of the planned African capacity comes on stream, prices could further tumble to $60 per tonne in the next seven years, a price drop to a level not seen since the darkest days of the global financial crisis, when the demands for commodities crashed.

Story continues below Mr Hurst's research is based on a study of 17 key iron ore projects in West and Central Africa and provides new estimates on the new additional production capacity according to their level of risks and likelihood of success.

China's push into developing reserves in Africa may hold the key for prices.

An Australian mining chief executive is quoted in the report as saying, ''the difference is that the Chinese operators can get the funding from Chinese banks where the Western Banks won't lend … so the Western company might make their assessment and go, 'yeah, I want to buy,' but can't get funding for it and that's the difference.''

Australia's big iron ore miners have publicly played down the potential challenge posed by new African suppliers. BHP's departing iron ore boss, Ian Ashby, recently said West Africa lacked the significant port and rail infrastructure that would be needed to create an iron ore province to rival the Pilbara.

Projects that were far from the coast would particularly struggle and he said political instability would also undermine the region's prospects, he said.

Mr Ashby said Australia and Brazil would continue to dominate the seaborne iron ore market for the foreseeable future, thanks to their well-developed infrastructure and stable political climates.

Most analysts expect the iron ore price will begin to fall around 2014 as large amounts of supply start to flow into the market.

Read more: http://www.smh.com.au/business/african-iron-ore-to-crunch-prices-report-20120422-1xew4.html