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Iron ore industry has been caught in a terrible vicious circle

Iron ore industry has been caught in a terrible vicious circle: the more prices fall, the greater the supply.
Fitch in the Australian mining company FortescueMetals ratings report predicts that global iron ore production next year and the year after will add 145 million tons, the industry than previously expected 130 million tons more than 10 percent. Fitch expects the average price of iron ore this year and next is $ 50 / ton.
Although in recent years iron ore prices continued to fall, but the mining companies in order to maintain market share increase was crazy, increasingly lead to excess supply, further exacerbating prices.
More or more to yield
In Fortescue Fitch mentioned in the report as an example. The company is Australia's third largest, the world's fourth-largest miner, iron ore industry is a rising star. Under the support of the Chinese shareholders, FMG the last five years with incredible speed completion of the expansion, and continue to reduce costs, it has become a veritable mining giant.
FMG rate of expansion beyond the vast majority of mining peers predicted that its beginning in 2010 to increase investment, expansion of 100 million tons of new capacity can be used for five years, while other Australian giant expansion of production capacity is almost the same with the 8 years.
And from 2010 to date, Qingdao 62% grade iron ore prices from post-crisis peak of $ 180 / ton fell to less than $ 50 all the way. Currently, infrastructure FMG has 180 million tons / year of operating capacity, exceeding its own production of 165 million tons / year.
Other mining giant to be outdone, Rio Tinto, BHP Billiton and CVRD the three iron ore producers have announced increase in the quarterly report released this month. The third quarter of this year, the world's second largest mining company Rio Tinto (RioTinto) iron ore production increase by 12%. This is mainly due to Rio Tinto upgrade of infrastructure projects in Western Australia was completed, the mine production capacity, annual production capacity of a total increase of about 40 million tonnes.
Goldman Sachs expects iron ore prices have dropped a lot of space, "the major producers are the cost of $ 20 per ton increase in supply, which allows you to see how fragile the market."
Chinese demand contraction
The stark contrast, it is the slowdown in Chinese economic growth and steel production to fall further. By output, China's second-largest steelmaker Baosteel Group chairman expects the country's steel production may reduce by 20%.
"Supply substantial growth, steel prices further losses, they will sooner or later be forced to cut production. Steel prices cut iron ore supply will determine the magnitude of excessive degree." Huatai Great Wall Futures analyst Xu Huimin said black commodity.


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