SHANGHAI: Spot iron ore prices hovered at near three-month lows as buying from top consumer China remains tepid, with concerns over increasing supply and lower steel demand growth driving down shares of top miners Rio Tinto and BHP Billiton.
A weaker-than-expected recovery in China's steel demand has left many steel mills operating at a loss, slowing down purchases of the key steelmaking raw material and keeping iron ore traders on the sidelines.
"Spot (iron ore) deals are scarce. Record high steel output and weak demand suggest steel mills are facing very tight cash flow, so they do not plan to purchase in the near term," said an iron ore official with an eastern China steel mill.
Benchmark 62 percent grade iron ore <.IO62-CNI=SI> eased slightly by 0.15 percent to $134.4 a tonne on Tuesday, not far from the $132.9 a tonne hit last Thursday, the lowest since Dec. 18, data from the Steel Index showed.
Traders are shying away from taking cargoes as many expect a further fall in iron ore prices amid few signs of an immediate pickup in steel demand.
"I would expect iron ore prices to fall to about $130, or even $125 a tonne as a floor level until we see steel demand is improving," said Yang Jun, an iron ore trader with Shanghai Sinom Import & Export Co.,Ltd.
Australia's Fortescue Metals Group, the world's fourth-largest iron ore producer, said on Wednesday it expects iron ore prices to average between $120 a tonne and $130 a tonne, but remain volatile around that level.
Concerns over iron ore prices in the coming years due to additional supply and lower Chinese steel demand growth dragged shares in major miners to near four-month lows.
Rio Tinto fell as much as 3.7 percent in Australian trade and BHP Billton fell nearly 3 percent, mirroring losses in London.
Goldman Sachs lowered its iron ore price forecasts to $139, $115 and $80 a tonne respectively for 2013-2015 due to rising supply and lower steel output, down by 3 percent, 11 percent and 9 percent.
"Seaborne prices will be supported in the near term by high-cost marginal mines in China, but this cost support will be gradually eroded over the next two years," Goldman said in a research note.
It remains bearish for the long term and sees price of $88 a tonne, including cost and freight, to China in the long term, and also expects oversupply to emerge sooner than expected.
"Lower rates of primary steel production and a resilient domestic iron ore sector will result in supply overtaking demand from 2014 onwards, driving prices towards the marginal cost of seaborne supply."
The Australia government revised forecasts on iron ore production for 2012/13 to 538 million tonnes from a previous forecast of 529 million tonnes, up from 504 million tonnes in 2011/12.
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