Canberra - XINHUA
The return of Chinese domestic iron ore producers to an already over-supplied market and a slowdown in China's residential property sector have contributed to the price of iron ore dipping below 100 U.S. dollars a tonne, according to Australian analysts. Iron ore, measured out of the Tianjin port in China, lost 2.2 percent overnight on Monday, sliding to 98.50 U.S. dollars per tonne, its lowest point since September 2012 as a bear market for the commodity threatens billions of dollars in Australian mining revenue. The bulk metal has slumped 6.6 percent in May and is down 26.6 percent for the year, stemming from fears Chinese demand is being outpaced by increased output from miners globally. Citi commodities strategist Ivan Szpakowski said the return of Chinese domestic iron ore producers to the market had impacted heavily on supply in the past month. "On a normal year, they come back on production around March," Szpakowski said in a report published by Fairfax Media on Tuesday. "However, this year because of the price had fallen so steeply in March, quite a number had postponed production, then when prices rebounded back up to 115-120 U.S. dollars per tonne, these miners came back online. Now in the last few weeks, we've seen this supply hit the market." The slowdown in China's residential property, which accounts for 24 percent of steel consumption in the world's second largest economy, has also helped push the price of iron ore down. Moody's analytics said the construction, sales and outfitting of apartments represented 23 percent of Chinese gross domestic product last year, but China's National Bureau of Statistics has reported a drop in home sales of 18 percent in April and a fall in the value of sales to 418 billion yuan (71.8 billion U.S. dollars). New property construction fell 22 percent in the four months to the end of April. "Money supply in China has been relatively weak, which is a key driver of property sales and property sales data has been very, very weak in April and parts of May," Deltec chief investment officer Atul Lele said. However, other factors mean the outlook might not be as gloomy for Australian producers as the numbers suggest, certainly nowhere near as much as it was in September 2012 when the price of iron ore price plummeted to below 90 U.S. dollars. That slump surprised and hurt many in Australia who were still hoping, misguidedly as it transpired, to continue riding the long- running mining boom into future, but that sobering experience and market factors have meant the industry is now far better prepared for a price fall. In September 2012, when the iron ore price bottomed at 86.70 U. S. dollars, the Australian dollar was valued higher than its U.S. equivalent, making it more expensive for Australian producers to do business. Now that the Australian currency has fallen below the U.S. currency to about 93 U.S. cents, it is about 7 percent cheaper for Australian iron ore miners to do business. This is because their costs are generally in Australian currency, whereas their product revenue is in U.S. currency. Simply, the currency correction means seeing the price of iron ore fall to 100 U.S. dollars per tonne or below will hurt less now than it did in 2012. Australia's iron ore producers might be operating on reduced margins but they are maintaining revenues by selling more products. Fortescue, for example, plans to export 41.6 million tonnes this quarter, while BHP Billinton has increased exports from 39.7 million tonnes to a proposed 70 million tonnes in the current quarter. Atlas Iron has almost doubled output this quarter. All this oversupply might be pushing the price down but ensures the money will still be coming in. All Australia's miners now run leaner operations compared with the heady days of the mining boom. Having shed jobs and reduced debt in some instances, they are better able to weather price shocks. China is the world's largest buyer of iron ore, accounting for more than 60 percent of seaborne trade, and Australian producers such as BHP Billiton, Rio Tinto and Fortescue have spent billions expanding operations in the past few years on the expectation Chinese demand will remain robust. However, while Australia's miners can profitably export iron ore at current prices, they might need to revise their expansion plans if the price continues to slide. "The bulk of Australian iron ore production is still profitable down to 50 U.S. dollars per tonne," said Mark Pervan, an Australia- based analyst with ANZ Research, in a report published by The Australian newspaper. "That said an iron ore price below 80 U.S. dollars per tonne would halt or delay most expansion plans creating possible export supply tightness in two to three years' time," he said, adding that he expected prices will bounce back by 10 to 15 U.S. dollars a tonne in the months ahead. The Bureau of Resources and Energy Economics (BREE) had forecast an average price of 110 U.S. dollars per tonne for 2014. Australia is expected to export 687 million tonnes of the raw material this year. At an average price of 110 U.S. dollars per tonne, iron ore revenue in Australia would be about 75.6 billion U.S. dollar or 81 billion AU dollars, but if the average were to fall to the current spot price of iron ore, revenue would sink to 67.7 billion U.S. dollars. Goldman Sachs has forecast the price of iron ore would slide to 80 U.S. dollars per tonne as the market becomes oversupplied in 2015.