-- Clyde Russell is a Reuters market analyst. The views
expressed are his own. --
By Clyde Russell
LONDON, Oct 30 (Reuters) - India is emerging as the unknown
factor for Asia's iron ore market in 2013, which otherwise looks
to be in a fair balance between supply and demand.
The key results from a Reuters poll of analysts on Monday
showed median forecasts for iron ore prices next year at $120 a
tonne and for Chinese import demand to gain 6 percent to 774
million tonnes from an estimated 730 million this year.
The scenario that the poll presents is for solid growth in
iron demand from the world's biggest user and steady prices as
well, given Asian spot prices closed Monday at
precisely $120 a tonne, near the highest level since late July.
It's also likely that China will account for the bulk of
growth in seaborne iron ore demand, with recession-plagued
Europe expected to be steady at best and modest growth likely
from the rest of the world.
An increase of 44 million tonnes from China should also be
well within the capacity of the main global miners to supply,
given what is known of their expansion plans and targets.
The world's largest iron ore miner, Brazil's Vale
, is expected to produce about 320 million tonnes in
2013, only marginally up from current output levels, which
amounted to 317.4 million tonnes in the 12 months to September.
The company expects its expansion projects to start coming
on line around the end of next year, but for the most part
increases in seaborne iron ore supply will have to come from
Australia in 2013.
The bulk of Australia's increased output will come from
world number two producer Rio Tinto, which is expecting
to raise production by 33 million tonnes to 283 million.
Third-ranked BHP Billiton said it expects a 5
percent increase in output in the year to end-June 2013 over the
same period a year earlier, which if extended over the calendar
year could mean about an extra 8 million tonnes.
Fortescue Metals Group has recently scaled back its
rapid expansion plans in the face of slower demand growth from
China and market unease over its debt-funded model, but even so
it may produce an additional 20 million tonnes in 2013.
Taking the three Australians miners together, output may
rise in the region of 61 million tonnes, more than enough to
meet the forecast growth in China of 44 million.
In fact, it's enough to suggest that the iron ore market
will be in a small surfeit, which in turn suggests limited
upside to prices.
Of course, forecasts tend to assume that other things remain
equal, and for iron ore in 2013 this may not be the case,
especially where India is concerned.
The South Asian nation used to be the world's third-largest
exporter of the steel-making ingredient, but the industry has
been roiled in recent years as the authorities try to crack down
on illegal mining and exports and reserve more production for
the domestic steel industry.
India's exports fell more than 40 percent in the
April-to-June quarter to 12.1 million tonnes from a year
earlier, according to official data.
Since then, however, a series of court rulings have called
into question whether any ore will be shipped out in the next
few months and into 2013.
The Supreme Court suspended iron ore transport on Oct. 5 in
western Goa state, a region that usually produces about 50
million tonnes a year and exports almost all of it.
This followed a limited resumption of mining in neighbouring
Karnataka state, but it's reasonable to assume that much of this
output will be used domestically.
The risk is that Indian ore exports, which head mainly to
China, will continue to slump as the authorities continue
efforts to regulate and organise the industry.
While a total loss of exports in 2013 is unlikely, the risk
has to be that they will be substantially lower than the 57.35
million tonnes shipped out in the year to end March 2012.
A loss of about half, or about 30 million tonnes, would
probably be enough to turn the Asian iron ore market into a
small deficit, which the major miners might struggle to
Throw into the mix the possibility of weather events being
more disruptive than normal in North Western Australia, and the
risks seem skewed toward supply not quite meeting expectations.
Of course, it's also possible that Chinese demand will be
below the consensus, and monthly import figures will need to be
However, the poll seems more to represent a best-case
scenario that assumes supplies won't be subject to shocks, which
may be optimistic given the uncertainty surrounding India.