BREE Lowers Forecast for Iron Prices to $110/Tonne from $119 Due to Surplus

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By Vittorio Hernandez | March 27, 2014 9:42 AM EST

With the three largest producers of iron ore in Australia targeting large increases in their output for the key steelmaking ingredient, the Bureau of Resources and Energy Economics (BREE) lowered on Wednesday its forecast for the commodity.

REUTERS
A miner holds a lump of iron ore at a mine located in the Pilbara region of Western Australia December 2, 2013. The world's second-biggest iron ore miner, Rio Tinto, last week said it would delay the expansion of its iron ore operations in Australia to 2017 but save $3 billion in the process. It plans to cut capital spending to $11 billion in 2014 from just under $14 billion this year, and sees capital spending at $8 billion in 2015, which would be less than half the level it was in 2012. Picture taken December 2, 2013. REUTERS/David Gray

It estimated that benchmark iron ore from Australia with 62 per cent iron content on a free-on-board basis would return to its 2013 price of $110 a tonne, down from the previous BREE forecast of $119.

The report explained, "Iron ore prices are not expected to recover to the high levels seen in 2013 due to the increased availability of supplies from new mines starting up in Australia."

With BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metal Group (ASX: FMG) targeting higher iron ore output for 2014, shipments from Australia - the world's largest exporter of iron ore - is expected to go up 19 per cent to a record-high 687 million tonnes.

In 2013, benchmark iron ore prices reached $130 per tonne due to the strong demand from China, which uses about two-thirds of global export of iron ore. However, some of the exports were stockpiled, explaining the surplus of the key steel-making ingredient.

BREE sees darker days ahead for Australia's iron ore producers with the benchmark price of the commodity seen to go down further to $103 tonne in 2015.

Despite the fall in iron ore prices by 17 per cent since January , Fortescue expects its net debt at $7.8 billion at its peak, after it pays down $3 billion debt by 2014 as the firm continues to deleverage and the choppy market.

Fortescue expects to produce a record-high 155 million tonnes of iron ore for 2014, said FMG Chief Executive New Power.

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(Photo: REUTERS / )
A miner holds a lump of iron ore at a mine located in the Pilbara region of Western Australia December 2, 2013. The world's second-biggest iron ore miner, Rio Tinto, last week said it would delay the expansion of its iron ore operations in Australia to 2017 but save $3 billion in the process. It plans to cut capital spending to $11 billion in 2014 from just under $14 billion this year, and sees capital spending at $8 billion in 2015, which would be less than half the level it was in 2012. Picture taken December 2, 2013. REUTERS/David Gray
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