Reuters reported that iron ore prices may drop nearly 10% over the next 3 years as top consumer China's economic growth shifts to a slower gear, threatening to squeeze profits at global miners Vale, Rio Tinto and BHP Billiton.
Closely tied to the fate of the steel intensive Chinese economy, iron ore prices and China's gross domestic product growth both hit 3 year lows this year. Beijing's shift to a more balanced growth model after a decade of investment driven expansion could curb the increase in steel demand.
According to the median estimate in survey of 12 analysts, iron ore is forecast to average USD 120 per tonne in 2013, down from an estimated USD 126 this year as China's crude steel production growth weakens.
The poll said that the price average should slip further to USD 119 by 2014 and to USD 115 by 2015.
Mr Ian Roper commodities strategist at CLSA said that "China continues a structural shift away from fixed asset investment-led growth, which means steel demand growth will remain below GDP growth rates in the future."
The most bearish among those polled, CLSA's Roper expects iron ore prices to average USD 85 and USD 75 in 2014 and 2015, respectively.
Mr Roper said that "Most forecasters are still in blind bullish mode thinking Chinese steel demand will grow and grow forever."
Economists said that the new norm for China's GDP growth is likely to be 7% to 8%, as Beijing seeks sustainable expansion after years of double digit rises. For 2012, the world's No 2 economy is forecast to grow 7.7%, the slowest pace since 1999.
A slowdown in the Chinese economy which grew by 7.4% in the Q3, the weakest since January to March 2009 dragged down iron ore prices in September to below USD 87 per tonne, their weakest in about 3 years.
Slower steel demand had forced Chinese producers to limit their iron ore stockpiles, prompting top miners to review expansion plans that were pinned on hopes Beijing will continue to suck in all the raw material they produce.
China's iron ore imports are forecast to grow 6% to 774 million tonnes in 2013 from a projected 730 million tonnes this year, the poll showed, slowing from last year's 10.9% increase. Annual import growth is seen falling to less than 5% in 2015.
According to the poll, crude steel production may rise 3.5% to 735 million tonnes from a predicted 710 million tonnes in 2012. In 2011, output grew 8.9% and by 2015, the annual increase is seen dwindling to 2.6%.
Source - Reuters
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