The Bureau of Resources and Energy Economics (BREE) has forecast that Australia’s iron ore exports will increase over the next six years by seven per cent per annum to 600 million tonnes (Mt), up from about 408Mt in the 12 months to June this year.
In anticipation of this projected export growth, major Australian miners are currently expanding existing mines and other companies such as China’s CITIC Pacific are planning new mines in Western Australia’s Pilbara region.
But the nation could find itself in 2016/17 with far more iron ore mine capacity than major markets such as China will demand.
Iron ore export capacity is expected to be boosted by about 75 per cent to at least 815Mt by December 2016.
This will come from an estimated $37 billion worth of projects with secured funding, including expansions of mines operated by BHP Billiton, Rio Tinto and Fortescue Metals Group.
And that’s a conservative figure, Martin Place Securities head of research Greg Burns says.
At least $85 billion worth of iron ore mine expansions are planned Australia-wide, which could effectively double current capacity of 465Mt to one billion tonnes by December 2016.
“But I don’t believe that’s possible,” Burns told reporters.
“It’s hard to get money at the moment, either equity or debt, so I just don’t think all the projects that are planned will actually see light.”
The expected gap between production capacity and demand in 2016/17 was not a concern, however, because the big miners would simply pull back output when needed to keep supply tight and prices high.
“I’m not terribly worried that we’re going to have an overrun of capacity and even if we do, they’ll just reduce the rate to match demand and won’t let the price soften too much,” Burns said.
“They’ll speed it up or slow it down, depending on the market.”
He also said Australia’s large potential iron ore projects list indicates a large dose of posturing.
It does not hurt the major miners to talk up their expansions, because this can deter new market entrants, Burns said.
“Some of these expansions by the big boys are really waving the flag, saying `nick off’ to other people.”
Source: AAP NewsWire