Iron Ore Seen Weak by Albanese as High-Cost Mines Hurting – by Jasmine Ng and Rishaad Salamat (Bloomberg News – September 29, 2014)

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Iron ore prices that retreated to a five-year low this month will remain weak for a sustained period as supply exceeds demand and China’s economy slows, according to Tom Albanese, former head of Rio Tinto Group.

High-cost producers are facing a “pain point” at prices of about $80 a metric ton, Albanese, chief executive officer of London-based Vedanta Resources Plc (VED), said in interviews with Bloomberg Television and a reporter today. While low-cost producers would still be able to make good money in iron ore, there will be closures of higher-cost mines over time, he said.

The raw material lost 42 percent this year as Rio Tinto and BHP Billiton Ltd. (BHP) expanded supplies, pushing the market into a glut just as demand growth slowed in China. Australia’s state forecaster cut its price estimates for this year and 2015 last week and predicted further closures of high-cost producers. Iron ore is heading for “pitiless pricing” on the expansions by major miners, according to Credit Suisse Group AG.

“At $80, the prices are at a pain point for many higher-cost producers,” said Albanese, who headed Rio from 2007 to 2013. “In this environment, you now have supply probably in excess of demand. It doesn’t take much to drive prices lower.”

Ore with 62 percent content delivered to Qingdao, China, capped an eighth weekly loss at $78.68 a dry metric ton on Sept. 26, according to data from Metal Bulletin Ltd. The steelmaking ingredient is heading for a third straight quarterly drop, the longest run of declines in data starting in mid-2009.

‘Credible Guy’

“There’s a lot of threat at that price,” said Daniel Morgan, a Sydney-based analyst at UBS AG, referring to the $80 figure cited by Albanese. “Tom was, for quite a number of years, the CEO of the second-largest iron ore producer globally. Iron ore was a huge component of their business. I think he’s a reasonably credible guy talking about the market.”

The worldwide surplus will increase from 52 million tons this year to 163 million tons in 2015, according to Goldman Sachs Group Inc. The price will average $80 a ton in 2015, the bank predicts. So far this year, it’s averaged $104.66.

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