Supply and demand hammer at price of iron ore

The price of iron ore is predicted to drop this year as growth of China's steel production slows and the supply of raw materials from international mining giants increases, according to industry experts.

An estimate from UBS AG earlier this month said the average price of iron ore would decline from $120 per metric ton in 2013 to $110 per metric ton this year, an 8.33 percent year-on-year decrease.

Tom Price, a commodity analyst with UBS, said prices will fall due to global seasonal steel production declines, as well as larger iron ore exports from Australia.

Taking into account China's macroeconomic adjustments, it is widely agreed the country's steel output and production capacity will slow as the central government targets steady growth in the future.

In order to reduce emissions and deal with air pollution, the State Council, China's cabinet, has created a series of strict policies to cut overcapacity, which will contribute to slower steel production in 2014.

China plans to reduce steel production by 80 million metric tons within five years, which is aimed at easing the current severe overcapacity in the domestic steel industry and reducing carbon emissions.

Xu Lejiang, head of the China Iron and Steel Association, estimated that China's crude steel output will total 810 million metric tons in 2014, up 4.5 percent compared with estimated overall steel output for 2013.

Last year's actual crude steel output has not yet been released since it takes time to collect data.

But for the first 11 months, China's crude steel output was 712 million metric tons, up 7.82 percent year-on-year, the association said.

Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, predicted that China will import 850 million metric tons of iron ore in 2014.

In fact, China's iron ore imports have been decelerating since 2011, and Li believes that the trend will continue next year with growth of 6.25 percent.

He estimated China's iron ore imports in 2013 to total 800 million metric tons, up 7.5 percent.

Xu Xiangchun, information director at Mysteel.com, a steel industry website and consultancy company based in Shanghai, shared that view, saying the iron ore supply will continue to increase but that China's demand will slow in coming years.

An increasing supply of ore from Australia remains a major threat to prices.

An anonymous industrial analyst with the association said four major mining companies - BHP Billiton Ltd, Rio Tinto Plc, Vale SA and Fortescue Metals Group - all have iron ore projects put into production ahead of schedule, which will result in a greater supply.

According to the analyst, the four companies will produce 470 million metric tons from 2013 to 2015.