The price of iron ore could fall to lows of $US75 a tonne next year as China will be unable to absorb waves of new supply from Australia and Brazil, analysts warned.
Ian Roper, a Singapore-based analyst who has covered the iron ore market since 2001, expects the iron ore price to drop to $US75 a tonne by September 2015 and stay that low into 2016 and 2017.
Roper said oversupply and sluggish demand from China were reasons for the price downgrade, Bloomberg reported.
“The oversupply situation is only going to worsen over the next few years,” Roper said.
He also commented that the property market slow-down in China “looks increasingly serious for steel demand next year”.
Iron ore has already lost 35 per cent this year as miners including BHP, Rio Tinto and Vale begin to export low-cost supplies.
This will lep to add around 94 million tonnes of new supply from 2015, 75 million tonnes in 2016, and 81 million tonnes in 2017.
Roper said this level of supply won’t be absorbed by China, which will decrease the amount of iron ore it imports over the next few years.
“For the first time in over a decade, the need to eliminate iron ore supply, rather than incentivize it, is determining prices,” he said
Roper said about 200 million tonnes of high-cost supply is a risk if iron prices drop to $US80 a tonne in the first half of 2015, which may spell trouble for some of Australia’s junior iron ore producers.
“From 2016, the story of the iron ore market will switch from being one of displacement of Chinese high-cost supply, to being one of displacing marginal seaborne supply,” Roper said.