Iron Ore Surplus Seen Shuttering China Mines

　　Surging global supplies of seaborne iron ore will challenge Chinese producers of the raw material for steel, probably forcing some higher-cost capacity in the country to close, according to BHP Billiton Ltd.

　　The gain in global production is being led by Australia and Brazil and their new, low-cost output will displace marginal suppliers in China, Michiel Hovers, vice-president of iron ore marketing at BHP, told an industry conference on Wednesday.

　　Vale SA, the world's biggest iron ore producer, plans to raise output by almost 50 percent by 2018, Claudio Alves, global director of marketing and sales, told the gathering in Singapore.

　　The biggest producers, including Vale, BHP, Rio Tinto Group and Fortescue Metals Group Ltd, have invested billions of dollars to expand output, betting on sustained growth in demand from China, the biggest buyer. Iron ore fell into a bear market in March amid forecasts for a global glut.

　　Fortescue wouldn't cut output even if prices extend declines as its costs are low, Zhuang Binjun, business development manager, said.

　　"Seaborne supply growth will come largely from Australia and Brazil," said Hovers. "This new supply will be low-cost seaborne and displace marginal supply from high-cost domestic Chinese producers and other lower-quality iron ore imports into China."

　　Slumping prices

　　Ore with 62 percent content delivered to Tianjin has fallen 21 percent so far this year to $106 a ton as of Tuesday, according to data from The Steel Index Ltd. The benchmark fell to $104.70 on March 10, the lowest level since 2012. While prices may be firmer over three months, there may be a drop below $100 over six months, toward $90, on the new supplies, Kamal Naqvi, global head of metals at Credit Suisse Group AG, told the conference.

　　If prices drop to $100, output in China may be hurt as domestic mines with high production costs are forced to cut output or close, according to the Bureau of Resources and Energy Economics, Australia's government forecaster. By comparison, Rio Tinto can be profitable above A $39 ($36), BHP's breakeven is A $41 ($38), and Fortescue's is A $56, UBS AG estimated. Global seaborne supplies will increase 126 million tons to 1.38 billion tons this year, Morgan Stanley estimated in a May 5 report. That will increase the worldwide surplus to 79 million tons in 2014 from 1 million last year, the bank forecast. "What's happening now is the major iron ore producers are bringing considerable new capacity," Alves said in an interview, forecasting a rise of about 120 million tons this year and a further 100 million tons in 2015. "Most of the tonnage is very competitive," he said.

　　(Source: China Daily)