African threat to iron ore price
THE record high price for iron ore is set to tumble over the next seven years as a burgeoning supply in Africa hits the international market, new research finds.
Luke Hurst, an economist at the Australian National University's Crawford School of Public Policy, predicts that the current high price for iron ore of $150 a tonne is likely to fall back to about $80 a tonne.
If more of the planned African capacity comes on stream, prices could tumble as low as $60 a tonne in the next seven years.
That is a level not seen since the darkest days of the global financial crisis, when demand for commodities crashed.
Mr Hurst studied 17 iron ore projects in west and central Africa, and estimated the additional production capacity according to the projects' levels of risks and likelihood of success. The report was partly funded by the federal Department of Resources, Tourism and Energy.
China's push into developing reserves in Africa may hold the key for prices.
An Australian mining company chief executive is quoted as saying: ''The difference is that the Chinese operators can get the funding from Chinese banks where[as] the Western banks won't lend … so the Western company might make their assessment and go, 'yeah, I want to buy', but can't get funding for it, and that's [the] difference.''
Australia's big iron ore miners have publicly played down the potential challenge posed by the new African suppliers.
BHP's departing iron ore boss, Ian Ashby, recently said that West Africa lacked the port and railway infrastructure that would be needed to create an iron ore province to rival the Pilbara.
African projects that were far from the coast would especially struggle. Political instability would also undermine the region's prospects, he said.
Mr Ashby said Australia and Brazil would continue to dominate the seaborne iron ore market for the foreseeable future, thanks to their well-developed infrastructure and stable political climates.
Most analysts expect the price of iron ore to begin to fall around 2014 as large volumes of the commodity start flowing into the market.