Find below the iron ore price table for March 19, 2013:
Mild weakness was apparent in rebar futures as well.
But the big news today is the combined assault on Rio by Goldman Sachs and…itself. From the AFR:
Greg Lilleyman, president of Rio’s Pilbara iron ore operations, told an industry conference in Perth on Tuesday that additional exports from Australia and a slowing in steel demand growth would hurt the iron ore price in the second half of the year.
“We’re going to see a number of projects bring supply on around the globe and particularly in the Pilbara,” he said.
“We’re going to see steel demand growth slowing – I wouldn’t say steel demand is slowing – so inevitably, that’s going to put some downward pressure on iron ore prices.”
…“In terms of iron ore projects around the world, whether they be Rio’s or someone else’s, inevitably if prices are lower moving forward than the period that we’ve just come from, they’re not going to be easy,” he said.
“All projects face significant hurdles with major capital investment and all of the risks that go along with that. With long-run iron ore prices, they are all going to be tough.”
Mr Lilleyman’s comments came as Goldman Sachs’ London office put Rio on its conviction sell list, citing cuts to its iron ore price forecasts. The investment bank is now tipping an average price of $US80 a tonne in 2015 as the market moves into oversupply.
…But Goldman Sachs London team still anticipates a situation of oversupply emerging in the market next year to the detriment of Rio and other big iron ore miners.
On Rio, I interpret this as a warning to all juniors that it has no intention of slowing its production ramp up. If the price is going to fall then it’s going to have the market share. Of course, it is also guaranteeing that the price will fall.
On Goldman, good to see the squid following MB. Here is their executive summary:
Neutral outlook in the short term following a strong recovery
Last year we forecast seaborne iron ore prices to recover from the downturn in 2H 2012, and we also expected seaborne demand to benefit from a decline in Chinese iron ore production. Prices did strengthen, but domestic production has surprised us on the upside recently. As a result, we are shifting to a more neutral outlook from current prices and modestly lowering our 2013 price forecast to US$139/t from US$144/t. While we are shifting to a more neutral view for this year, we maintain our longer-term bearish view driven by 1) more robust domestic Chinese production, 2) an expected surge in seaborne supply and 3) an expected maturing of the Chinese economy away from infrastructure development and we now expect the transition into structural oversupply to occur in 2014.Iron ore demand growth will moderate to 2%
Steel production in China has accelerated strongly over the past 15 years. However, growth has slowed recently and we expect it will remain below GDP growth rates in the future as the Chinese economy matures. Moreover, our modeling suggests that steel scrap availability will increase strongly at the expense of primary steel production. On that basis we expect global seaborne iron ore demand to revert back to its historical growth rate of 2% per annum towards the end of our forecast period.Domestic iron ore production may be more resilient than expected
We previously expected Chinese domestic production to decline over the next few years as small, high-cost marginal mines were displaced by lower cost seaborne supply. However, domestic production may not necessarily decline. Although China is endowed with iron ore deposits of low quality that put it at a cost disadvantage relative to Australia and Brazil, continued investment in large scale mines is likely to offset the loss of marginal mines and moderate future demand for imports.Over 200Mtpa of seaborne supply must be displaced post 2015
Future demand will not be sufficient to absorb new production capacity, and we believe c. 200Mtpa of seaborne supply will need to be rationed out of the market. In our view, this has significant implications for seaborne producers (see GS Iron Ore 50: As market surplus looms, which projects will make the cut?).
And here’s a snap shot of Goldman’s newly announced “conviction sell” on Rio which hit it for 5% last night in London:
All arguments that will be familiar to MB readers. You have to ask yourself, if Rio is a conviction sell, what is Australia?
