From Credit Suisse comes an insight into the timing of any shakeout in Chinese iron ore:
China’s CY2013 run-of-mine (ROM) iron ore output increased 8% to 1.44 Bt. We estimate this as 370 Mt on a 62% Fe equivalent basis, +5% yoy.
This robust number was, in our view, underpinned by two key factors:
High Q1 prices created an incentive for mines that close through the winter and Chinese New Year to restart by March 2013.
The summer price outturn kept all but the most marginal miners profitable, supporting H2 volumes.
For our 2014 forecast of 320 Mt to be realised, 50 Mt of existing production needs to be pushed from the market, not to mention our estimate for a required seaborne market adjustment of 42 Mt (see Iron Ore: Waiting for the fall). A price above $120/t is not low enough to achieve this, in our opinion.
In short, mines will resume production after Lunar New Year and the production will be more sticky for longer than if prices were lower now and that kept them shut.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
