Despite some positive steps, 2016 isn’t expected to provide
miners with much good news after a tough 2015.
More than 55 per cent of mining industry analysts, investors
and executives believe the iron ore price will fall below $35 per tonne this
year, according to a survey of the industry.
And half of those believed the price still has further to
fall, below $33/t.
The survey, undertaken by West Perth-based Consulting firm, took place before the price fell below $40 per tonne in December.
By comparison, only 3 per cent of around 350 mostly
Australian respondents had predicted it would stay above $40/t, while around
22 per cent took the middle ground of $34-36/t.
About 23 per cent of those surveyed believed iron ore would
be the worst performing commodity for the year, second only to coal.
Graphite, nickel and manganese were the next most frequent
choices.
Pricing wasn’t the only bad news for iron ore players to
come from the survey, with most respondents believing it would be unlikely
there would be major discoveries of the commodity and that few mergers and
acquisitions would take place.
A turnaround in the industry is still way off, too, with a
quarter of respondents saying the iron ore market won’t improve for one to two
years.
A further 44 per cent said it would be more than two years
until things got better.
It comes after last week’s World Steel Association analysis
of crude steel production in 2015, which contained the unsurprising result that
global output had fallen 2.8 per cent to 1.62 billion tonnes during the year.
China, which produces roughly half of global output, leads
the way with production falling 2.3 per cent to 804 million tonnes.
But according to a mining group director of sales
and marketing who spoke at the company’s December quarter results
announcement last week, the outlook for the commodity could be brighter than
some expect.
Chinese iron ore imports hit a record high in December of
over 96 million tonnes, he said.
The increase coincided with signs of continued inventory
restocking at Chinese ports and further weakness in domestic iron ore
production.
He said iron ore imports had risen around 2.2 per cent on
the previous year, with seaborne demand remaining strong, while it had been the
higher cost producers that were being edged out of the market.
Seaborne iron ore was trading at about 80 per cent of the
price of domestic concentrates, he said.
Domestic Chinese mine utilization is also low, currently
at 55 per cent, he said.
The sentiment has certainly been improving as more and more
(steel) mills are starting to make a profit again.
We expect China's supply side reforms should benefit the
steel sector mid long term.
The industry would be expected to consolidate and improve
margins.
Other popular commodities.
The standout in the survey was gold, according to the respected managing director.
She said that was unsurprising, given it was historically a
safe haven commodity and there had been an unprecedented downturn across the
sector.
Another benefit for gold was the Australian dollar’s
depreciation.
Although golds popularity is suggestive of the broader desire
for security, the fact that gold and copper are such clear standouts this year
suggests that people are looking more long term, she said.
Furthermore, the merger and acquisitions market would be busy,
most respondents suggested, with more than 25 per cent saying they expected
gold to be the driver of most activity, particularly in Australia.
That put it well ahead of nearest rival’s copper, zinc and
nickel.
Similarly, 18 per cent of respondents viewed gold as most
likely to deliver exploration results, with copper and zinc again featuring
highly.
Overall, most respondents felt it would at least six months
until the outlook in the mining industry started to improve, with more than 44
per cent believing it would be at least a year until things pick up.
An additional 17 per cent felt it would be more than two
years until there was a turnaround.
But she saw positives in the results.
Last year the survey suggested an industry in disarray, she
said.
The industry might not be feeling comfortable right
now, but they see the light at the end of the tunnel.
