(Minews) - Surprisingly, 2013 proved to be broadly balanced for the iron ore market. Reported port stocks, for example, ended the year only 2% up, following a 13% decline in 2012. Following an overly bullish start to 2013, much of the year was characterised by further destocking. Unlike in 2012, underlying iron ore demand actually moderated through the second half – we estimate that crude steel output fell 1.8% versus the first half and slowed to 6.5% year-on-year in December from 7.5% overall.
But confidence revived late in the year, enough to support some mild restocking. It was in the second half when the Chinese government changed its tone about the tolerance of lower GDP growth, and showed a strong intention to support it above the Q2 low. Industrial production certainly accelerated thereafter ending the year almost 10% higher year-on-year. The Metal Bulletin Iron Ore 62% Fe index generally fluctuated in the range of $130-140/tonne cfr China from mid-July boosting the annual average last year to $136/tonne, up 5%. The supply glut, which most market participants had expected, did not appear, even as iron ore imports rose by more than 10%. This was due largely to the higher-than-expected steel production in China, while new capacity also came on stream at a slightly slower-than-expected pace.
Chinese iron ore demand is expected to increase firmly in2014 as the stabilizing economic growth (7-7.5%) will continue to encourage steel mills to run at high operating rates to meet the relatively robust downstream demand
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However, the uncertain part would be the environmental protection measures, which have reined in crude steel production since mid-November.
Iron ore demand outside China - accounting for about 40% of seaborne iron ore - should also rise due to the rebound of crude steel production elsewhere. On the supply side, the major increase will continue to come from Australia, mainly driven by the newly-added capacity from Rio Tinto and FMG. Meanwhile, shipments from Brazil are likely to remain stable.
That said, the market share of other exporters to China has been in decline in the past few years. India, which used to be the third-largest iron ore exporter, fell out of the top ten suppliers to China last year.
More recently, Iran decided to impose a 10% tax on the export of iron ore fines. Now that Australia and Brazil are becoming increasingly dominant on spot supply, which could also lend support to iron ore prices amid a modest surplus, MBR expects spot prices of 62% Fe fines to average at around $128/tonne in 2014.
Analysis by Xiaolei Xu, MBR Iron Ore Analyst
