Iron Ore to Slump by Half to $75 by 2015-16, Itau Unibanco Says

Iron ore spot prices may slump by half to $75 a metric ton by 2015-16 as supply increases, said Marcos Assumpcao, a senior analyst at Itau Unibanco Holding SA.

Prices will average $150 a ton until the end of the first half and then may fall to $140, he said. Assumpcao spoke in an interview in London today.

On iron ore prices:

“Iron ore spot prices could remain flat at the current level of $150 a ton, which is already very strong, in the first- half of next year, considering there’s no double dip in the global economy. They will ease a bit in the second-half to average $140 a ton after some new supply projects come online.

“The price will fall to $75 a ton in 2015 and 2016 as most of the large projects will be completed and supply will increase. The pricing mechanism in iron ore will remain quarterly as long as there’s no big volatility.”

On import taxes:

“There’s already an import tariff of 12 percent in Brazil for importing some steel products. We could eventually see higher tariffs in the short-term of one year as a temporary measure in order to reduce the import level, which is currently very high. The import tax rate may be increased to 18 percent from 12 percent for about a year. This is one option, it’s not a given.”

On projects in Brazil:

“Most of the new projects in Brazil lack financing and means of transporting the raw material. They don’t have access to railroads or ports, that’s why they are all delayed. Environmental permits are also getting increasingly difficult to be granted.”

On Vale SA Chief Executive Officer Roger Agnelli:

“It’s not clear whether Agnelli will leave his post as CEO when his mandate expires in May. If he leaves and then if the replacement is somebody from the industry, it could be well received by investors. If it’s someone as a result of political spin, that will be negative.”

“The company’s relations with the government have always been very good and there’s no reason for that to change from one administration to another.”

“The expansion of Vale is mainly focused on the Carajas mine, which has the best quality iron ore. The cash cost in the mine is less than $20, so even at low prices Vale would continue to benefit.”