Global iron Ore Price per metric ton 2015 predicted Fall 29 percent

Global iron ore commodity prices may fall 29 percent to an average $123 a metric ton in 2015 from a record $173 this year, according to the median estimates of 10 analysts surveyed by Bloomberg News. The decline contrasts with estimates for little change in copper and a 10 percent increase for aluminum in the same period, London Metal Exchange futures prices show.

Iron ore commodity is set for the first four- year drop since at least 1982 as supplies surge, threatening to end record earnings at Vale SA, Rio Tinto Group and BHP Billiton Ltd., the world´s biggest producers.

Iron ore supplies for export will jump 53 percent by 2015 even as slower growth in Chinese steelmaking saps demand, Goldman Sachs & Partners Australia Pty. said. That will reduce prices and profit that reached records this year for BHP andBrazil’s Vale, whose net income will fall almost 50 percent by mid-decade, according to data compiled by Bloomberg.

“Iron ore is the largest single contributor to profits for these large mining companies,” Tony Robson, an analyst at BMO Capital Markets inToronto, said by telephone. Should sagging prices offset rising shipments, “total profitability will be reduced,” he said.

Rio Tinto fell 11 percent, the most in two years, to close at 3,017 pence inLondon. BHP slid 8.3 percent to 1,731.5 pence. They led a group of basic resource producers and banks that pulledU.K.stocks down the most in 2 1/2 years as the Federal Reserve warned of “significant downside risks” to theU.S.economy. Vale’s American depositary receipts were down 6.7 percent at $23.63 at4:00 p.m.inNew York.

The three producers together supply about 62 percent of the seaborne market, the largest platform for global trade, UBS AG said. The turnabout caps two years of price gains for the main ingredient in steelmaking that spurred them and Chinese-financed operators to dig new mines inAustralia,BrazilandAfrica.

BHP is spending $7.4 billion on its operations inWestern Australia’s Pilbara region to boost output 64 percent to 220 million tons by 2014.Riois studying spending about $15 billion expanding annual capacity in the region by about 50 percent by 2015.

World trade in iron ore is forecast to gain 8 percent next year to 1.2 billion tons, withChinaexpected to account for the largest share,Australia’s Bureau of Resources and Energy Economics said this week in a report. Meanwhile, the pace of growth in steel demand inChina, the biggest ore buyer, may ease to 2.6 percent annually through 2015 from the 4.6 percent forecast for this year, as its economy slows, the China Iron & Steel Association said in April.

“Come 2014 and 2015 we expect a continuing flattening of Chinese steel production,” Peter Hickson, global head of commodity research at UBS, said in an interview. “There’s easing of demand growth, but certainly the primary issue is emergence of significant new supply.”

Citigroup Inc. has estimated a surplus of 50.6 million tons of iron ore in 2014, rising to 100.8 million tons the following year, driven by increased output capacity. Annual growth in global steel production will slow to 3.2 percent in 2015 from 8.6 percent this year, Morgan Stanley said in July.

AtRio, earnings before interest and tax from iron ore are forecast to drop to $11 billion in 2015 from an expected peak of $21.3 billion next year, Deutsche Bank AG said Aug 4. Iron ore provided almost two-thirds of the London-based company’s 2010 earnings before interest, tax, depreciation and amortization, or Ebitda.

At BHP, where iron ore comprised 26 percent of Ebitda in fiscal 2010, the earnings will peak at $16 billion in 2013, before falling to $11.6 billion in 2015 and $7.9 billion in 2016, Bank of America Corp. said in a report. Overall Ebitda will drop 25 percent in the five years through 2016, the bank forecast.

“We think that the growth in Chinese steel production will ease over the next few years and that the iron ore supply side will catch up, move into oversupply and prices fall,” Goldman Sachs analyst Neil Goodwill said in a Sept. 9 report.

Iron ore for immediate delivery was $177.40 a ton on Sept. 20, according to a price index compiled by The Steel Index Ltd. The price reached a record $191.90 on Feb. 16. Kelly Quirke, a spokeswoman for BHP, and Karen Halbert, a spokeswoman forRio, declined to comment on the iron ore outlook.

Chinahas been on a decade-long drive to break the stranglehold ofRio, BHP and Vale by bankrolling rival mines. Chinese investors, mainly state-owned steelmakers, have funded at least 20 iron ore companies inAustraliaincluding Sundance Resources Ltd., Fortescue Metals Group Ltd. and Mount Gibson Iron Ltd. In August, Shandong Iron & Steel Group Co. agreed to buy a 25 percent stake in African Minerals Ltd.’s Tonkolili project inSierra Leonefor $1.5 billion.

In the last decade,Chinahad to absorb six years of gains in contract prices and failed to stop the three top suppliers moving to spot pricing, heightening tensions between the suppliers and the Chinese government.

China’s drive to secure larger-scale ore production was set back in June 2009 whenRio, the world’s second-largest exporter, rejected a planned $19.5 billion investment by Aluminum Corp. ofChina, or Chinalco, that would have included stakes inRio’s Australian iron ore operations.

Riosaid last month a 10 percent drop in iron ore prices will cut its annual underlying earnings by $1.7 billion and BHP said a $1 a ton decline in the price will reduce net income by $90 million for this financial year.Rioand BHP are set for record profit this year of $17.6 billion and $25.3 billion respectively, according to data compiled by Bloomberg.

BHP Chief Executive Officer Marius Kloppers said in May seaborne-traded iron ore supply growth had failed to meet expectations. From 2008 to 2010, about 55 percent of supply growth hadn’t been delivered, he said in a presentation.

“In theory there is going to be huge expansions includingRio, BHP and everybody else,” Ian Henderson, who manages $9 billion of natural-resource assets at JPMorgan Chase & Co. inLondon, said in an interview. “But in practice very few of these projects are likely to be up and running on time or to produce as much as people are saying.”

New projects will add at least 500 million tons and “probably” more than 600 million tons of capacity by the end of 2013, the earliest time when supply and demand will be brought into equilibrium, the United Nations Conference on Trade and Development said last month in a report.

Iron ore contract prices next year are forecast to average $151 a ton as growth in supply fromAustralia, coupled with weaker steel production, particularly in OECD economies, place downward pressure on prices, the Australian government forecaster said in a report.

Mining companies inWestern Australiastate alone are spending about A$45 billion ($46.3 billion) on developing and expanding iron ore mines, according to the state’s Department of Mines and Petroleum.

“We have forecast a surplus in 2014,” said Citigroup analyst Daniel Hynes. “It’s a combination of obviously this demand growth easing but we are also seeing several projects in the west and the western Australia coming through at that time as well.”

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