India Removing Iron Ore Ban Seen as Bearish by Citigroup

Apr 22, 2014 8:08 am ET

(Updates price in second, fifth paragraphs.)

April 22 (Bloomberg) -- India’s decision to end the iron ore mining ban in Goa state will expand the global surplus and could be bearish for prices, according to Citigroup Inc.

Rates will average $100 a metric ton in the fourth quarter and drop below $100 on some days, said Ivan Szpakowski, an analyst in Hong Kong, restating bank predictions. That’s 11 percent less than now and the lowest level since September 2012.

Iron ore entered a bear market last month as economic growth in China slowed and mining companies in Australia boosted output, shifting the global seaborne market into a glut. Goldman Sachs Group Inc. and Credit Suisse Group AG also predict lower prices in 2014. The mining restart in Goa, which represented half of India’s shipments before the halt, may increase supplies for China, the world’s biggest importer.

The “incremental supply out of Goa will push the market into greater surplus,” Szpakowski said by phone today. “The market on the whole has been underestimating the resumption in Indian production and exports.”

Iron ore with 62 percent content delivered to the port of Tianjin declined 0.7 percent to $112.50 a dry ton today, the lowest level in more than three weeks, according to The Steel Index Ltd. Prices lost 16 percent this year, dropping to a 17- month low of $104.70 on March 10.

Renew Leases

India’s Supreme Court yesterday allowed miners to resume operations after imposing a ban 18 months ago for environmental violations. The state can produce a maximum of 20 million tons a year after miners renew leases, it said in its order. A court- appointed panel will submit an environmental report in six months and give its assessment on increasing the limit.

“Now that Goa’s been given permission, it takes time for them to re-employ the labor force, get the mines back up in operation,” Szpakowski said. “It won’t be a quick process. It will take time before we see the volume in the market.”

The news will hurt prices if all the 20 million tons come onto the seaborne market, which is unlikely, said Erlend Engelstad, an analyst at Marex Spectron Asia Pte in Singapore. While prices may drop briefly below $100 in the second half, how long they stay there depends on Chinese demand and domestic production, he said by e-mail today.

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