Top iron ore shipper forecasts 19% drop in 2016

The world's biggest iron ore exporter has lowered its forecast for 2016. The economy slowdown in China is impacting the iron ore demand significantly. Iron ore is the Australia's largest export earner.

Australia's Department of Industry & Science forecasts iron ore price of $41.30 a metric ton for 2016 as against the previous prediction of price was $51.20 in September. The Department of Industry & Science in its quarterly outlook has cut the average price of iron ore for 2015 by 4.7 percent to $50.40 per ton.

As per a report by Financial Review, iron ore export revenues from Australia fell 43 percent in 2015. Despite the drop in prices, low-cost miners such as Rio Tinto, BHP Billiton and Vale continued their expansion to sustain the market share.

The Department in its report said: "Increasing supply from Australia and Brazil is forecast to drive seaborne iron ore spot prices down in 2015 and 2016. The overcapacity in China's steel industry is expected to exert downward pressure on steel prices and reduce the incentive to increase output."

The Department's forecast refers to spot ore with 62 percent content free-onboard Australia. The raw material delivered to China rose 0.9 percent to $40.46 per dry ton, according to Metal Bulletin. Iron ore price bottomed out at $38.30 on 11 December lowest since May 2009, as reported by Bloomberg.

The oversupply situation coupled with slump in Chinese commodities market puts more pressure on iron ore prices. Exports of iron ore from Australia rose seven percent in 2015 and forecast to be 13 percent in 2016, predicts the Department of Industry & Science.

Brisbane Times reports that The Department of Industry & Science has lowered price forecast by 19 percent to $41.30 per metric ton from $51.20 for 2016. The shipment from Australia is expected to increase to 868 million tons of cargo in 2016 from 767 million tons in 2015. The rise in iron ore supplies indicates the growing market share of the Australian mining companies in China.

Though China's iron ore imports are increasing at slow pace, small players are forced to quit the market. The shift of focus from investment-led growth to consumer-driven demand is witnessing a transition in the Chinese economy.

The crude steel production is expected to ease further to 800 million tons in 2016 from the previous forecast of 808 million. With Chinese demand easing off, more production cuts are expected in the near future. The steel output will shrink to 783 million tons in 2016 from 806 million tons in 2015.