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Johannesburg - The iron-ore market will be oversupplied for two to three years, keeping prices low, as major miners bring projects on stream, according to Africa’s biggest producer.
World supply will grow about 3% annually in the next few years even as Chinese demand wanes due to slower spending on heavy infrastructure, Norman Mbazima, chief executive officer of Kumba Iron Ore [JSE:KIO], said in an interview on Tuesday.
While that’s a reduction from the 8% annual supply expansion over the past few years, it still means the world will be awash with the steel component.
"The iron-ore market has been very, very difficult because the majors have been increasing the supply onto that market at a time when demand is on the wane," said Mbazima. Chinese "growth going forward is more consumer facing and therefore less demanding of iron ore."
A supply glut fed by the biggest producers, Rio Tinto Group, BHP Billiton [JSE:BIL] and Vale, drove prices down about 70% in the past five years, pushing higher-cost companies out of the market. Still, new supply from Roy Hill Holdings in Australia, Anglo American’s [JSE:AGL] Minas Rio and Vale’s S11D in Brazil will outpace demand for some time, Mbazima said.
Not good
"Fundamentals are not good," said Mbazima, who will step down after four years on September 1. "Those projects are going to be ramped up; people have already invested the money. That’s going to happen, almost regardless of what happens to the price. In that environment, you can expect prices to remain under pressure."
Iron ore has rebounded this year, climbing 33 % to $58.08 a metric ton.
"I would expect another two or three years of volatility before we reach equilibrium," Mbazima said.
Kumba, almost 70% owned by Anglo, has been able to weather the storm by cutting its mining volumes in half and reducing its workforce by a third. With costs between $32 and $40 a ton, the company is generating cash at current prices.
