India may change iron ore fortunes

A depreciating currency and encouraging demand over the medium term spells good news for the state’s mining juniors, if they can ride out short-term fluctuations.

The Australian dollar gold price in particular has been gathering steam in recent months, helping the S&P ASX All Ordinaries Gold index to rally above 2,600 points from a low of just 1,700 at the start of December.

Newcrest intensified interest in the sector this month with the announcement it was considering the sale of its Telfer mine.

By contrast, the news for Western Australia’s single largest export, iron ore, has been softer.

ANZ Research said it expected the surplus of iron ore to grow to 85 million tonnes for at least the next two years.

“It’s important to remember while the price slump has been dramatic and hard to monitor, 85 per cent of the seaborne market is still making money,” ANZ said in a recent update on the bulk commodity.

“ANZ’s forecasts for 2016 and 2017 have been downgraded … not tracking any higher than the existing spot price of $US63 a tonne.

“Prices will firm in 2018 as the surplus diminishes, but supply will remain well above historic levels for the rest of the decade.”

In the longer term, India could drive growth in the demand for iron ore.

In a 2014 report, EY noted that steel consumption per capita had a positive relationship with GDP per capita, with India still low in both.

As with China, steel intensity grows most strongly before a country reaches a per capita GDP of $15,000, EY found.

That means India could play a bigger role in the future movement of the price of iron ore.

Nickel and zinc prices surged strongly in the early years of the commodity boom but tailed off as the GFC struck.

Zinc prices close to $US2,100/t are roughly in line with long-term trends, according to modelling from Credit Suisse in 2011.

The metal reached as high as $US2,400/t last year, however in Australian dollar terms the price has pushed upwards as the currency depreciates.

Closures of zinc mines later this year, including Australia’s largest, near Cairns, might also place upward pressure on prices.

Similarly, nickel production could be in deficit this year, according to recently reported comments by Japanese producer Sumitomo Metal Mining, as stockpiles in China are exhausted.

St. George Bank senior economist Hans Kunnen said the global metals demand was around trend and growing.

“The US, the biggest industrial complex in the world, continues to grow more robustly than it has,” he said.

“Japan has introduced policies that will encourage its economy to grow.”

Mr Kunnen said India and China would also deliver reasonable growth, giving hope for efficient producers.

“(Iron ore) won’t get to the highs of four years ago,” he said.

But times had definitely changed since the days when it sold for $15/t, he said.