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Iron ore prices to average $US130 in 2013

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January 21 2013, 6:02PM

Analysts predict iron ore prices will average $US130 per tonne this year before retreating to $US90 in 2015.

The forecast by Morningstar analyst Mathew Hodge comes a fortnight after prices surged to $US158 per tonne in the spot market.

Mr Hodge said the recent price increase stemmed from an up-tick in Chinese infrastructure spending which boosts steel production.

But he expects prices to decline further as current prices outstrip underlying supply and demand.

Last week the iron ore price dropped marginally to US$154 per tonne.

Morningstar's 2015 forecast is based on predictions of slower growth in steel demand in China.

On the supply side Morningstar believes prices will come under pressure in a more tepid demand growth environment.

Iron ore prices of $US90 per tonne would not affect low cost miners such as Rio Tinto and BHP Billiton which are likely to continue to generate attractive profits, Mr Hodge said.

He said higher cost miners with less robust balance sheets would feel the pinch.

"Atlas Iron, Mount Gibson and Mineral Resources, though considerably higher cost miners than BHP Billiton and Rio Tinto, do enjoy relatively strong balance sheets," Mr Hodge said.

"This is a key risk differentiator from Gindalbie Metals and Fortescue Metals where the balance sheet gearing, coupled with significantly lower margins, make for potentially excessive leverage should the iron ore price retreat."

The iron ore price has risen more than 70 per cent since it bottomed in September 2012.

At this stage Atlas Iron, Mount Gibson and Mineral Resources have balance sheets which provide some defence against unfavourable iron ore prices.

The research found leveraged miners had tended to benefit most and suffered the most during the iron ore price decline in September 2012.

"We would largely expect similar behaviour in a falling iron ore price environment where the leveraged plays suffer the most," Mr Hodge said.

By Kim Christian