More Bad News for Oversupplied Iron Ore Market

The lifting of ban on iron ore mining in the Indian state of Goa is not good news for the oversupplied iron ore market.

Apr 24, 2014 at 8:07AM

Last week, mining giant BHP Billiton (NYSE:BHP) lifted its iron ore production outlook for the fiscal year ending on June 30, 2014. Rival Rio Tinto (NYSE:RIO), meanwhile, reported record iron ore production for the first quarter. Brazilian miner Vale (NYSE:VALE) is also targeting annual output of over 360 million tons. Even as mining giants are increasing supplies, there is a sharp slowdown in China, the world's biggest consumer of the bulk commodity. The supply/demand mismatch is likely to keep iron ore prices under pressure going forward. Additionally, supplies could rise even more as India's Supreme Court lifted a ban on iron ore mining in the state of Goa.

Miners increasing supplies
Even as iron ore prices have fallen sharply this year amid slowdown in China, miners have been increasing iron ore production. BHP Billiton recently lifted its iron ore production outlook for the fiscal year ending June 30, 2013 by 5 million tons to 217 million tons. The Anglo-Australian miner lifted its outlook after reporting a 1% sequential and 23% year-over-year increase in iron ore production in the March quarter. BHP's iron ore production in the March quarter totaled 49.6 million tons.

Rival Rio Tinto said that its March quarter production rose to a record 52.3 million tons. However, the first-quarter production fell short of Street estimates of 54.7 million tons.

Iron ore supplies are set to rise as miners continue to boost production. However, a slowdown in China would mean that demand is not likely to keep up pace. As a result, the iron ore market is expected to see a significant glut. Meanwhile, supplies could rise even more as India's Supreme Court has lifted a ban on mining in Goa.

Ban lifted
On Monday, India's Supreme Court lifted an 18-month ban on mining in the state of Goa, which is India's third-largest iron ore mining state. The ban was imposed back in 2012 in order to curb illegal mining in Goa. Although the ban has finally been lifted, the annual output has been capped at 20 million tons. Prior to the ban, Goa's output totaled around 45 million tons, with much of it exported to China where demand at the time was strong.

However, Goa produces low-grade iron ore, whereas in the wake of anti-pollution measures steel mills in China now prefer high-grade iron ore from Australia. Also, production is not expected to resume immediately due to the monsoon and regulatory issues. Still, the lifting of the ban means that more supplies are likely to be added to the iron ore market at a time when there is already increasing supply from mining giants such as BHP, Rio, and Vale.

The Roy Hill project in Australia, which is likely to come online in 2015, will add further to global supplies. Meanwhile, a rebalancing Chinese economy would mean that the country's iron ore demand will never reach the level seen in the previous decade. Not surprisingly, the outlook for iron ore prices is bearish.

Price outlook remains bearish
Iron ore was the best performing commodity in 2013; however, the bulk commodity has already fallen sharply since the start of this year on concerns over a supply glut and a slowdown in demand. Morgan Stanley expects global seaborne iron ore supply to exceed demand by 79 million tons this year. The surplus is expected to double to 158 million tons in 2015.

Given that such a significant supply glut is anticipated over the next two years, iron ore prices are expected to remain under pressure. As I have noted in previous articles, mining giants such as BHP, Rio, and Vale will remain profitable even if prices fell below $100 per ton. However, lower prices will hurt mining companies' cash flows and affect their plans to cut debt levels. 

Boost your 2014 returns with The Motley Fool's top stock
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Varun Chandan Arora has no position in any stocks mentioned. The Motley Fool owns shares of Companhia Vale Ads. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers