Iron ore to decline 19% before stabilizing
Source: Bloomberg News |
June 4, 2012, Monday
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Print Edition
Print Edition
IRON ore prices will fall 19 percent before finding a "long-term, sustainable" level as China's economy slows, according to the head of Fortescue Metals Group Ltd, Australia's third-biggest producer.
The steel-making raw material will drop to about US$110 a ton, Fortescue CEO Neville Power said on Inside Business's program on the Australian Broadcasting Corp yesterday. Iron ore traded at US$135 on Friday, according to a price index compiled by The Steel Index Ltd.
"Looking forward, we've allowed the forecast to drop down to around US$110 a ton and done all our modeling around that," Power told ABC. "Long term, that will be the sustainable price." He didn't say how long that decline may take.
Iron ore in May posted the biggest monthly drop since October on concern that slower growth in China, the biggest buyer, is curbing demand from mills. While the nation is still expanding at an enviable rate, the Chinese economy is enduring ?"short-term fluctuations," Power said.
Resilient iron ore
China's economy is forecast to grow 8.2 percent this year, the least since 1999, based on the median estimate of analysts surveyed by Bloomberg News last month.
Power said iron ore has proved to be "resilient" and will fetch between US$130 and US$150 a ton "in the short term."
Forecasting declines, Power said the Australian government will struggle to meet income targets from its mining tax. The contribution from Perth-based Fortescue, which plans to almost triple annual iron-ore output to 155 million tons by June 2013, will be "negligible" over the next two to three years, Power said.
A tax on profits from iron ore and coal, which won Australian Senate approval in March and takes effect July 1, will reap about A$6.5 billion (US$6.3 billion) in revenue over two years from companies including BHP Billiton Ltd and Rio Tinto Group, government estimates show.
"That's going to be very difficult for them to achieve those revenues," Power said. "As the iron ore price goes up, that tax liability goes up, but at these iron ore prices, I don't see us paying any."
The steel-making raw material will drop to about US$110 a ton, Fortescue CEO Neville Power said on Inside Business's program on the Australian Broadcasting Corp yesterday. Iron ore traded at US$135 on Friday, according to a price index compiled by The Steel Index Ltd.
"Looking forward, we've allowed the forecast to drop down to around US$110 a ton and done all our modeling around that," Power told ABC. "Long term, that will be the sustainable price." He didn't say how long that decline may take.
Iron ore in May posted the biggest monthly drop since October on concern that slower growth in China, the biggest buyer, is curbing demand from mills. While the nation is still expanding at an enviable rate, the Chinese economy is enduring ?"short-term fluctuations," Power said.
Resilient iron ore
China's economy is forecast to grow 8.2 percent this year, the least since 1999, based on the median estimate of analysts surveyed by Bloomberg News last month.
Power said iron ore has proved to be "resilient" and will fetch between US$130 and US$150 a ton "in the short term."
Forecasting declines, Power said the Australian government will struggle to meet income targets from its mining tax. The contribution from Perth-based Fortescue, which plans to almost triple annual iron-ore output to 155 million tons by June 2013, will be "negligible" over the next two to three years, Power said.
A tax on profits from iron ore and coal, which won Australian Senate approval in March and takes effect July 1, will reap about A$6.5 billion (US$6.3 billion) in revenue over two years from companies including BHP Billiton Ltd and Rio Tinto Group, government estimates show.
"That's going to be very difficult for them to achieve those revenues," Power said. "As the iron ore price goes up, that tax liability goes up, but at these iron ore prices, I don't see us paying any."
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