Despite some green shoots, 2016 isn’t expected to provide miners with much good news after a tough 2015.
Despite some green shoots, 2016 isn’t expected to provide miners with much good news after a tough 2015.
More than 60 per cent of mining industry analysts, investors and executives believe the iron ore price will fall below $US34 per tonne this year, according to a survey of the industry.
And half of those believed the price still has further to fall, below $US32/t.
The survey, undertaken by West Perth-based Ravensgate Consulting, took place before the price fell below $US40 per tonne in December, although it is now hovering above that mark.
By comparison, only 3 per cent of around 350 mostly Australian respondents had predicted it would stay above $US40/t, while around 22 per cent took the middle ground of $US34-36/t.
About 23 per cent of those surveyed believed iron ore would be the worst performing commodity for the year, second only to coal.
Graphite, nickel and manganese were the next most frequent choices.
Pricing wasn’t the only bad news for iron ore players to come from the survey, with most respondents believing it would be unlikely there would be major discoveries of the commodity and that few mergers and acquisitions would take place.
A turnaround in the industry is still way off, too, with a quarter of respondents saying the iron ore market won’t improve for one to two years.
A further 44 per cent said it would be more than two years until things got better.
It comes after last week’s World Steel Association analysis of crude steel production in 2015, which contained the unsurprising result that global output had fallen 2.8 per cent to 1.62 billion tonnes during the year.
China, which produces roughly half of global output, leads the way with production falling 2.3 per cent to 804 million tonnes.
But according to Fortescue Metals Group director of sales and marketing David Liu, who spoke at the company’s December quarter results announcement last week, the outlook for the commodity could be brighter than some expect.
“Chinese iron ore imports hit a record high in December of over 96 million tonnes,” Mr Liu said.
“The increase coincided with signs of continued inventory restocking at Chinese ports and further weakness in domestic iron ore production.”
He said iron ore imports had risen around 2.2 per cent on the previous year, with seaborne demand remaining strong, while it had been the higher cost producers that were being edged out of the market.
Seaborne iron ore was trading at about 80 per cent of the price of domestic concentrates, Mr Liu said.
“Domestic (Chinese) mine utilisation … is also low, currently at 55 per cent,” he said.
“The sentiment has certainly been improving as more and more (steel) mills are starting to make a profit again.
“We expect China’s supply side reforms should benefit the steel sector mid long term.”
The industry would be expected to consolidate and improve margins.
Other commodities
The standout in the survey was gold, according to Ravensgate managing director Sonja Neame.
She said that was unsurprising, given it was historically a safe haven commodity and there had been an unprecedented downturn across the sector.
Another benefit for gold was the Australian dollar’s depreciation.
“Although gold’s popularity is suggestive of the broader desire for security, the fact that gold and copper are such clear standouts this year suggests that people are looking more long term,” Ms Neame said.
Furthermore, the merger and acquisitions market would be busy, most respondents suggested, with more than 25 per cent saying they expected gold to be the driver of most M&A activity, particularly in Australia.
That put it well ahead of nearest rivals copper, zinc and nickel.
Similarly, 18 per cent of respondents viewed gold as most likely to deliver exploration results, with copper and zinc again featuring highly.
Overall, most respondents felt it would at least six months until the outlook in the mining industry started to improve, with more than 44 per cent believing it would be at least a year until things pick up.
An additional 17 per cent felt it would be more than two years until there was a turnaround.
But Ms Neame saw positives in the results.
“Last year the survey suggested an industry in disarray,” she said.
“They (the industry) might not be feeling comfortable right now, but they see the light at the end of the tunnel.”
