(Minews) - Iron ore exporters from Australia are winning the battle for market share in China, boosting cargoes to the largest buyer and squeezing higher-cost producers as prices decline to the lowest level since 2009.
Shipments from Australia accounted for 59 percent of China’s overseas purchases last year from 51 percent in 2013, according to customs data on Friday. Brazil’s share was 18 percent from 19 percent in 2013, while exports from the rest of the world fell to 23 percent from 30 percent. The figures were based on calculations derived from monthly trade data by origin.
BHP Billiton Ltd., Rio Tinto Group and Fortescue Metals Group Ltd. increased low-cost output last year, betting that higher volumes would offset lower prices as less competitive rivals and Chinese mines were forced to close. The raw material retreated 47 percent in 2014 and Citigroup Inc. forecasts further losses this year. It makes sense for the majors to go on raising supplies as slumping oil prices help them cut costs further, preserving their margins, according to CLSA Ltd.
“Australia’s taken market share because they managed to build everything faster,” Ian Roper, a CLSA analyst in Singapore, said before the figures were released. “FMG has done spectacularly the last two years. BHP last year beat expectations. Rio always deliver on time.”
China imported about 548 million tons from Australia in 2014, an increase of 32 percent from a year earlier, after December imports climbed to 52.4 million tons, the highest on record for data going back to 2004. Shipments from Brazil were 171 million tons last year, 10 percent higher than 2013.
China SlowdownWhile China’s economic growth was the weakest last year since 1990 and steel mills raised output at the slowest pace on record amid a property market slowdown, iron ore imports continued to expand. By volume, total purchases rose 14 percent to 933 million tons last year from 820 million tons in 2013, customs data show. Imports in December were an all-time high.
Ore with 62 percent content delivered to Qingdao, China, fell 1.5 percent to $66.79 a dry ton on Thursday, the lowest level since 2009, according to Metal Bulletin Ltd. Prices will average $58 in 2015, down from an earlier estimate of $65, Citigroup said in a report dated Jan. 14.
The global glut is forecast to swell from 35 million tons this year to more than 200 million tons by 2018, UBS Group AG said Jan. 15. The battle for market share will be renewed in 2015 as supplies rise, analysts including Daniel Morgan said.
Driven Out
China’s iron ore imports from countries including Indonesia, Malaysia and Iran declined since the middle of the year as higher-cost producers were driven out, Deutsche Bank AG said in its 2015 commodities outlook, dated Dec. 16.
Among Australian projects opening this year is the Roy Hill mine backed by Gina Rinehart, Asia-Pacific’s richest woman. The start of shipments from the $8.2 billion mine, as well as growth by the major producers will boost Australia’s exports to 766 million tons this year from about 718 million tons in 2014, the Department of Industry said in December.
Rio de Janeiro-based Vale SA forecast that production will climb to 340 million tons in 2015, including third-party purchases. In December, Brazil reported the highest monthly shipments since at least April 2005.
Having the two countries dominate global supply, “means lower prices will stay because all the supply growth these days is at the bottom of the cost curve,” said Roper, forecasting iron ore may trade from $60 to $80 this year. “For most of the majors, the iron ore business is still their biggest-margin business, so it’s nothing they’ll be cutting back.”
