The iron ore market should brace itself for years of oversupply, Citi Investment and Research managing director of global commodity analysis Alan Heap told MINING DAILY.
“There’s been a huge amount of new capacity scheduled to come on stream,” he said.
“This is going to plunge the market into oversupply for certainly the next three years.”
A state of oversupply has been on the horizon for some time and is not simply a result of the recent financial crisis, Heap said.
“Even before the downturn in steel production we expected the market to be in oversupply,” he said.
“This downturn has just brought the timing of the oversupply forward.”
According to Heap, as long as scheduled projects go ahead the state of saturation is unavoidable, and different companies are handling it in different ways.
“There does appear to be something of a divergence in strategic response amongst the producers in the oversupplied market, with Vale being prepared to curtail production quite actively,” he said.
“At the other end of the spectrum, BHP Billiton is much more reluctant to curb its expansion plans.”