02-Oct-2013
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Australia’s official commodities forecaster has increased its expectations for Chinese iron ore imports, which it sees reaching 1bn tonnes by 2018.
In its latest quarterly report, the Bureau for Resources and Energy Economics said it expected China to import 872 tonnes of the steelmaking material in 2014, an 8.3 per cent increase on its previous forecast made in June.
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“Demand is being propelled by the high level of steel production due to the growth in commercial and residential construction,” BREE said in the report.
In spite of strong demand from China, iron ore prices were unlikely to rise excessively because of increased supply from Australia, the world’s biggest exporter of seaborne iron ore. As new supply from Western Australia comes on stream the government forecasting agency expects Australia exports to rise 17 per cent to 669m tonnes.
“Australia’s iron ore exports are projected to increase at an average rate annual rate of 8 per cent a year between 2014 and 2018 to total 847m tonnes in 2018,” BREE said. “The strong growth is being supported by many of the mines in the Pilbara region of Western Australia being at the lower end of the cost curve.”
Mining companies BHP Billiton, Fortescue Metals Group have ploughed billions of dollars into new projects to boost output of the commodity. On Wednesday, Rio opened new port facilities in the Pilbara, part of an US$11.6bn project to lift annual iron ore output from 220m tonnes to 290m tonnes.
Andrew Harding, the head of Rio Tinto’s iron ore business, said the company was very confident about Chinese demand and the transition from low-rise accommodation to more “steel-intensive structures like skyscrapers”.
Benchmark iron ore prices have rallied 20 per cent to $130 a tonne since June as Chinese steel production surged on the back of stimulus aimed at stabilising the economy. Analysts now expect annual Chinese steel output to reach 755m tonnes in 2013, up from expectations of 700m-725m tonnes at the start of the year.
Over the three months to September the iron ore spot price averaged $122 a tonne, up from $118 in the previous quarter. “This rebound in spot price is contrary to what has happened in recent years, and primarily reflects lower port inventories of iron ore in China,” BREE said in the report.
Colin Hamilton, analyst at Macquarie, said concerns about supply outpacing demand in the iron ore market had been overplayed.
“We know there is a lot of supply coming but stocks in China are also relatively low,” he said, adding a key meeting on Chinese economic policy in November could also boost the price.
“There’s a greater chance of the price hitting $150 than $100 before the end of the year,” he said. Chinese stocking cycles are the biggest short term driver of iron ore prices and right now they are low and we think steelmakers will be looking to build up.”
BREE also forecast Australia’s thermal coal exports to increase at an average rate of 8 per cent a year to 271m tonnes in 2018. “The growth is expected to be supported by increased demand for exports from China in the short term and then from India later,” it said. Iron ore and coal are Australia’s two largest export earners.
Source:- ft.com
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