Even though Iran is ranked globally as the 11th iron ore producer and the fourth supplier to China – the world’s biggest buyer of iron ore — next only to Australia, Brazil, and South Africa, the country has lost the ability to compete in the global market with iron ore producing giants such as Australia and Brazil.
A rapid increase in the global supply of iron ore, combined with moderating demand growth in China pushed the price of the raw material to a five year low in 2014.
The global glut is expected to continue in 2015 as the world’s largest producers, Australia’s Rio Tinto Group and BHP Billiton and Brazil’s Vale SA are planning to expand their production, pushing the market into more oversupply.
Experts predict that iron ore supplies will increase about 60 million to 75 million metric tons in 2015, in line with a 75 million ton rise in 2014. Prices are seen staying weak for a sustained period as production increases and China’s economy slows, according to Foolad News.
Global Surplus
Rio Tinto, the world’s second iron ore producer, predicted in its annual report last month that global iron ore supply is growing faster than demand.
Global supply is projected to increase 4.6 percent this year to 1.43 billion tons, topping the 3 percent growth in demand to 1.25 billion tons, the Iranian Mines & Mining Industries Development & Renovation (IMIDRO) estimated in its report, adding that the glut will surge from 184 million tons this year to 437 million tons in 2018.
On the other hand, BHP – the world’s largest mining company headquartered in Melbourne, Australia – kept a production target for 225 million tons this fiscal year from 204 million the previous year, while London-based Rio plans output of 330 million tons from 295 million in 2014. Vale expects to produce 340 million tons. The three miners, which accounted for about 57 percent of global shipments last year, are paring costs to preserve margins as prices slump.
Prices Influenced by Chinese Demand
China, which buys about two-thirds of the world’s iron ore supply, has set an economic expansion goal of about 7 percent in 2015, the lowest in more than 15 years, as leaders tackle industrial overcapacity and a property slump. While the Chinese government has vowed to move away from expansion at all costs, the country’s central bank cut interest rates for the second time in three months on Feb. 28. The country’s policies to deliver economic growth of about 7 percent will probably keep iron ore trade flows and prices stable, rather than driving them sustainably above current levels. Experts have predicted an average iron ore price of $58 to $79 per ton in 2015.
