Warning: Weaker iron ore prices ahead

One of China’s biggest steel manufacturers has warned Australian miners to expect weaker iron ore prices later this year, as China’s steel sector struggles to break even.

As reported by the SMH, Ansteel chairman Zhang Xiaogang told London's Financial Times the average iron ore price for 2013 would be between $US110 and $US120 a tonne.

While iron ore on Monday was trading at $US111 a tonne, when averaged out from January 1 it sits at $US140 a tonne.

Zhang’s tip for commodity price falls is in line with recent comments made by Rio Tinto CEO Sam Walsh who stated commodity price volatility is here to stay in the short term.

''We have to prepare for a long-term struggle,'' Zhang said in reference to the Chinese steel sector.

''Some people will collapse during this war of attrition if their cash flow dries up, or if they can't make any money at all.''

Earlier this year Fortescue Metals Group predicted iron ore would average about $US120 a tonne during 2013, an expectation FMG chief executive Nev Power upgraded, if only slightly, in April.

Power siad iron ore was ''probably going to trade in the range of $US120 to $US130 a tonne for the foreseeable future''.

Government agency, The Bureau of Resources and Energy Economics was also in the same range as Ansteel and Fortescue, predicting in March that iron ore prices would average $US119 a tonne in 2013.

A recent PwC report, Mine: A Confidence Crisis indicated rising costs, profit falls, and dropping planned capital expenditure are all signals that the sector is in for a tough ride.

According to the report despite Chinese growth slowing, the Asian powerhouse is still consuming about 40 per cent of global metals.

A Chinese slow down will come off the back of a bigger base, with annual iron ore import volumes almost tripling since 2005, copper imports almost doubling in value and overall GDP more than doubling, the report explained.

“Although the growth experienced over the past eight years can be expected to moderate we remain optimistic in our outlook on China. But the industry should not ignore the potential for further fluctuations in real growth rates,”  PwC Australia’s energy, utilities and mining leader Jock O’Callaghan said.

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