PwC Forecast Calls For Higher Iron Ore, Coking Coal Prices in 2014

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It’s no secret that iron prices worldwide saw a bull phase towards the latter half of this year. (That is to say, prices were firm and didn’t plummet like many were saying – here’s MetalMiner’s take on a TSI report from earlier this week.) But a new forecast by global consultancy PwC has Indian steelmakers nervous.

The agency has predicted that prices of both iron ore as well as coking coal, crucial raw materials in the production of steel, may firm up and even rise in 2014.

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The Economic Times quoted Tim Goldsmith of PwC as saying that next year would see “fairly stable pricing” for iron ore, and if anything, it may go up. Goldsmith’s views do not bode well for Indian steelmakers because India’s largest iron ore producer, NMDC Ltd, almost always benchmarks the price of iron ore with international rates. Which translates into this – if iron ore prices go up worldwide, they will also go up in India.

Other analysts had earlier in the year predicted that global iron ore prices would drop from the present rates. Those forecasts were based on a combination of factors – China’s economic slowdown, and its over-capacity in steel production, among others. Then, there’s the opening up of more supplies to consider. The continued bullishness in iron ore prices from July onwards was one more aspect.

A Morgan Stanley report in October this year said the iron ore market will experience a supply shortfall of 25 million tons in the first half of 2014 before a surplus of 49 million tons in the second half. Morgan Stanley was forced to revise its earlier prediction of ore costing about US $125 a ton in the first half of 2014 to about US $130 a ton.

Even in the second half, when mine expansion in Brazil and Australia is expected to add to the supply, the expected price is $120 a ton. In November, ore price had touched US$137 a ton, climbing to a two-month high on accelerated buying by China.

But in Goldsmith’s opinion, new supply routes may not materialize to the fullest.

New raw material, he says, may prove to be a challenge, particularly in Brazil. So, because the demand for ore is growing, its pricing will hover at levels seen today or may even go up if the opportunity presents itself. Historically, iron ore demand goes up by about 6 percent annually across the globe. Australia and Brazil supply nearly half the global demand for iron ore, a market that currently stands at around 1.5 billion tons.

Indian steelmakers have a headache of their own, which others around the world do not.

Even though India sits on a pile of iron ore, because of a legal ban that’s been in force for about two years, supply has dried up. From being a prominent exporter, India is almost on the verge of becoming an importer of iron ore in the short term. So increased steel capacity or greenfield steel projects next year will have to fully rely on sourcing ore from Australia or Brazil, and higher prices of course means steel producers will have to shell out more.

According to PwC, where coking coal is concerned, it’s almost the same story as iron ore for Indian steelmakers. State-owned firm SAIL depends largely on imports for meeting the requirement, and a price hike there would almost immediately be reflected in domestic prices.

PwC feels that the uncertainty of exactly how much coking coal China will produce in 2014 is one factor why prices may increase.

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