Iron ore rallying most since 2010 as China rebounds

Capacity Glut

Rising prices and seaborne trade won’t be enough to return ship owners to profit because of a glut of capacity. Rates for Capesizes, which carry more iron ore than any other class of vessel, slumped 82 percent this year, according to the Baltic Exchange in London, which publishes prices for 61 maritime routes. Earnings will average $12,250 a day in 2013, below the $15,500 that Pareto Securities AS says they need to break even, the mean of nine analyst estimates shows.

Chinese steel production rose 14 percent to 57.47 million tons in November from a year earlier, while the price of reinforcement bars used in construction climbed about 11 percent this month to the highest level since July on the Shanghai Futures Exchange. Ore imports were the second-highest ever in November at 65.78 million tons, customs data show.

Shares of Rio de Janeiro-based Vale rose 7.6 percent this year to 40.69 reais and will gain 20 percent to 49.02 reais in the next 12 months, according to the average of 12 analyst estimates. Net income will climb to 28.92 billion reais ($13.9 billion) next year, from 23.92 billion reais in 2012, the mean of seven analyst predictions shows.

Ore Exports

Profit at Rio Tinto Group, the second-largest exporter, will rise to $10.85 billion from $10.07 billion, according to the mean of 20 analyst estimates. Shares of the London-based company jumped 12 percent to 3,509 pence this year and will reach 3,868 in 12 months, the forecasts show.

Brazil’s ore exports fell 0.9 percent to 294.3 million tons in the first 11 months as rain curbed output, government data show. Vale plans to invest the least in three years in 2013 and will cut production to 306 million tons from 312 million tons this year, the company said Dec. 3.

India’s shipments may slump 25 percent to 38 million tons in 2013, Australia’s Bureau of Resources and Energy Economics said Dec. 12. The state of Goa, which exports more than half the country’s ore, banned all mining in September after a panel said the province lost money because of illegal work.

China’s miners may struggle to make up for any shortage in seaborne supply because they produce ore that contains about 20 percent iron, compared with 62 percent internationally, according to HSBC estimates and data compiled by Bloomberg Industries. Domestic ore output dropped 3.4 percent in the past two months, National Bureau of Statistics data show.

“It’s not a screaming bull year, it’s just a modestly bullish year,” said Tom Price, a commodities analyst at UBS in Sydney. “The next six months will be fairly active and positive for iron ore trade.”

Bloomberg News

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