Will Plentiful Iron Ore Exports Pressure Prices?
Iron ore shipments
Iron ore shipments from major ports in Australia and Brazil (EWZ) represent a large portion of the supply side of the iron ore equation. Therefore, it’s important to track this data. Port Hedland is the largest iron ore loading port in Australia. BHP Billiton (BHP), Fortescue Metals Group (FSUGY), and Hancock Prospecting use the port. Rio Tinto (RIO), on the other hand, uses Port Dampier.
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Iron ore shipments from Port Hedland rose 13% month-over-month in August to 42.8 million tons. However, the year-over-year (or YoY) growth was flat. The exports to China were also 11% higher sequentially at 35.7 million tons.
In value terms, Brazilian iron ore exports also rose 6.3% YoY to $1.3 billion in August. The volumes were, however, 1.1% lower YoY. While Brazil exported 34.5 million tons in August 2016, shipments were 34.1 million tons in August 2017. Overall, iron ore exports from Brazil are inching higher as Vale’s (VALE) largest iron ore project, S11D, is ramping up.
More supply going forward
The supply outlook from miners remains strong and it is expected to outpace the growth in demand, if any. This is the reason for the latest fall in iron ore prices. While the China steel cuts will limit the demand for iron ore, the supply remains plentiful. Investors should note that supply for capital-intensive iron ore cannot be adjusted in the short term. The capacity put in place at the peak of the cycle has come online recently or is still in process. The demand growth, on the other hand, has waned. This is causing the pressure on prices. The ramp-up of Vale’s 90 million ton per year S11D project is going according to schedule with a full ramp-up expected over the next couple of years. Gina Rinehart’s Roy Hill project in Australia is also ramping up toward its full capacity of 55 million tons per year. This trend is the main reason that analysts are expecting lower iron ore prices over the long term.