Iron-ore prices are poised to rebound from five-year lows as Asian infrastructure demand improves and high-cost mines close, according to the top producer Vale SA. (VALE5)
The steelmaking raw material, which slumped 49 percent this year to $68.49 a dry metric ton yesterday, will return to an average range of $85 to $90 next year, Chief Executive Officer Murilo Ferreira said in an interview. Prices jumped 2.2 percent today, the most in seven weeks. Vale isn’t considering slowing its expansions because of slumping prices and is pressing ahead with the $19.7 billion Serra Sul S11D mine and logistics project, the industry’s biggest, he said.
“There was a lot of volatility in prices this year and the market is undershooting at the moment and this will bring about a correction,” Ferreira, 61, said at the company’s headquarters in Rio de Janeiro yesterday. “This correction will come through the closure of many inefficient miners of high cost and poor quality iron ore.”
Vale, Rio Tinto Group (RIO) and BHP Billiton Ltd. are maintaining their expansions betting that higher-cost producers will be squeezed out of the market. The price plunge, including a 20 percent drop in the past three months, is prompting speculation China will close inefficient mines, while Cliffs Natural Resources Inc. is considering shutting a mine in Canada.
The raw material slid below $70 on Nov. 25 for the first time since June 2009 amid concern slower Chinese growth will curb demand from the biggest iron-ore consumer. The market needs to absorb a surplus of about 110 million tons next year, almost double the 60 million tons in 2014, Goldman Sachs Group Inc. estimates.
Price Struggle
“China mines produced about one-third of the country’s iron ore needs and any significant decline in output would be welcomed by the global industry, which has struggled with much lower pricing,” Bloomberg Intelligence analysts Kenneth Hoffman and Yi Zhu wrote in a Nov. 21 report.
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