BHP Billiton’s share price dropped 3% in London overnight and the iron ore price in Dalian and US futures markets came under heavy selling pressure after Australia’s Department of Industry and Science cut its iron ore price forecast yesterday.
In it’s resources and energy quarterly the department said it expects Australian exports to grow “4% to 748 million tonnes” in 2015.
For next year, however, it said exports would ramp up another 10% with increased exports from Gina Reinhart’s Roy Hill operations. That means, “in 2016 Australia’s exports of iron ore are forecast to grow by 10 per cent to 824 million tonnes as production at Roy Hill ramps up and the major Pilbara miners increase output.”
It all adds up to another 4.2% reduction in price in 2016 to an average of $52.10 a tonne from the current forecast for 2015 of $54.40 for this year.
But the department says not to worry because:
“A period of subdued prices is unlikely to significantly impact the major Pilbara producers, including Roy Hill, that are some of the world’s most efficient and lowest cost iron ore producers. However, in the current environment the Pilbara producers are expected to continue improving productivity and cutting costs to maintain their market position.”