Iron ore surplus seen shuttering China mines

If prices drop to $100, output in China may be hurt as domestic mines with high production costs are forced to cut output or close, according to the Bureau of Resources and Energy Economics, Australia's government forecaster. By comparison, Rio Tinto can be profitable above A $39 ($36), BHP's breakeven is A $41 ($38), and Fortescue's is A $56, UBS AG estimated.

Rio Tinto to boost iron ore capacity

Baosteel, Aurizon bid $1.3b on mine

Global seaborne supplies will increase 126 million tons to 1.38 billion tons this year, Morgan Stanley estimated in a May 5 report. That will increase the worldwide surplus to 79 million tons in 2014 from 1 million last year, the bank forecast.

"What's happening now is the major iron ore producers are bringing considerable new capacity," Alves said in an interview, forecasting a rise of about 120 million tons this year and a further 100 million tons in 2015. "Most of the tonnage is very competitive," he said.

Vale's expansion

Production at the Rio de Janeiro-based company will rise to about 453 million tons in 2018 compared with 306 million tons last year, Alves told the conference. Vale's average cost of production in Brazil is $21 to $22 a ton, he said.

"It takes time to absorb all this pickup in iron ore supply," said Alves, forecasting China's imports will be more than 900 million tons this year from 820 million tons. "It will make some pressure in terms of price, create some volatility."

The Tianjin benchmark fell for a fifth month in April, the longest losing run since August 2012, as growth in China slowed and seaborne supplies rose. The price will drop to $100 in the fourth quarter, according to Goldman Sachs Group Inc.