The Iron ore "glut" was predicted for 2012, 2013, 2014, 2015,...

The Iron ore "glut" was predicted for 2012, 2013, 2014, 2015, and now 2016. It has never come and is unlikely to. The reason being that only about 30% of all iron projects planned for production ever get into production. The hurdle is very high for any new producers.

The media, and to a large extent, the public, focus on the peak of iron ore pricing and lament how far its come off that, rather than seeing how resilient iron ore pricing is since it exceeded its annual reference price of $42/t. Iron ore pricing is unlikely to sustainably fall below about US$110/t, because below that level around 50% of China's domestic mines become uneconomic, dropping 300Mtpa out of the market (and is the reason all iron price weakness below US$100/t rebound very quickly, often to over-correct). The other issue on pricing is FOREX. OPEX is dominated by A$ costs, not US$. The A$ is closely tied to commodity pricing, particularly gold and iron. What the media never says is that if iron prices fell to what I consider unsustainable levels of US$80/t, the aussie would fall to around US65C (Credit Suisse's numbers), making the iron price around A$123/t, still well above most junior's costs and resulting in a profit a little less to what we see today with an iron price of US$115 and a FOREX of 93c.

Finally, China's growth is currently targeted as 7.5% and is currently tracking 6.5%. China needs to import nearly 700Mt of iron ore annualy. At a 7.5% growth, this means around an extra 53Mtpa this year, an EXTRA 109Mt next year, and and EXTRA 170Mt the year after will be required. And whilst some analysts have said that GDP growth will not translate into iron demand growth as it did in the past, my contention is that it will, and likely to exceed it, as China strives to bring central and far western China into the prosperity that eastern China currently enjoys (China has recently announced massive rail and freeway projects to placate the troublesome western provinces).

Thats just Chinese demand. As Europe, the USA, and SE Asia (particualrly India) GDP grows and demand picks up, the so-called "iron glut" will seem like a fairy tale.

Of course, nothing ever goes to plan; I would expect to see high iron price volatility going forward. But the future is a lot rosier than some would have you believe. Afterall, isnt that why the normally highly conservative majors ("we need 100% capital utilisation")are expanding production?