Olivia Pratt
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Iron Ore Risks Extending Losses to Lowest Since 2009 on Supplies

Iron ore prices are at risk of slumping to the lowest level since 2009 as increased supplies from Australia and Brazil boost a global surplus and prompt the closure of some higher-cost Chinese suppliers.

The commodity may retreat to $80 a metric ton this year, according to Helen Lau, an analyst at UOB Kay Hian Ltd. in Hong Kong, who’s tracked the market for seven years. Ore with 62 percent content at Qingdao, China, fell to $90.34 a ton last week, according to data from Metal Bulletin Ltd. That’s near this year’s low of $89.48 on June 16, which was the lowest price since September 2012, when it bottomed at $88.08. A price of less than $88.08 would be the lowest since October 2009.

Prices tumbled 33 percent this year as mining companies from BHP Billiton Ltd. (BHP) to Rio Tinto Group increased output, pushing the seaborne market into a glut. Major producers in Australia, which have average costs of about $40 to $50 a ton, are continuing to increase supply even with prices near the lowest level in five years, Australia & New Zealand Banking Group Ltd. said in a report today.

“There’s still room for iron ore prices to go down,” Lau said in a phone interview today. “There will be a lot of cheap seaborne supply to replace Chinese market share. They will drive the price down lower.”

Global seaborne output will exceed demand by 72 million tons this year and 175 million tons in 2015, Goldman Sachs Group Inc. estimates. China’s economy, which accounts for about 67 percent of seaborne demand, will probably grow this year at the weakest pace since 1990, according to a Bloomberg survey.

“With supplies ramping up and China’s property market looking to be in the relatively early stages of adjusting for a supply glut, it’s certainly a scenario where buyers may now be in a position to delay purchases in the spot market without too much risk,” Ric Spooner, chief strategist at CMC Markets in Sydney, said by e-mail. “That could easily see prices drift lower.”