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The iron ore price slump will impact on Anglo American’s iron ore subsidiary Kumba Iron Ore, which has warned that its full-year earnings will be at least R3 billion lower than last year.

The iron ore price bottomed at $78.01 a tonne this week for ore with a 62% iron content, as the major producers of the steel ingredient producing surplus quantities of the commodity, further driving down prices.

In its quarterly report for September 2014, Kumba reported a decrease in export sales volumes by 4% compared to the third quarter. The miners domestic sales volumes also dipped – decreasing by 14% compared to Q3 2013 and by 18% compared to the previous quarter.

Drop in export prices

Kumba, which operates two large iron-ore mines in the Northern Cape and the smaller Thabazimbi mine in Limpopo, said on Tuesday its earnings for the year to end-December were lower than before because of the drop in export prices.

Kumba’s basic earnings last year were R15.4 billion, or R48.09 per share. Earnings this year would be at least R9.62 per share lower, it said, according to a BDLive report.

It will give the market a range of earnings forecasts closer to the end of the year.

Anglo’s first-ore-on-ship in Brazil

Adding to the flood of iron ore, Anglo American has started shipping at its $8.8 billion Minas Rio project in Brazil, which is ramping up to 26.5-million tonnes a year.

Bloomberg on Wednesday reported that iron ore declined to the lowest level in more than five years as China ordered some steel mills to reduce production, curbing demand in the world’s biggest user just as increased supplies add to a global surplus.

The global glut may keep prices near five-year lows for at least a further year, said Paulo Castellari, the CEO of Anglo American’s iron-ore unit in Brazil.

Supply boost

Iron ore would probably trade at about $75 a tonne to $80 a tonne in the short term as the start-up of new mines boosted supply.

“It will take time for the market to react,” commented Castellari said. “We will have another readjustment starting in 12 to 18 months because we know a lot of people won’t survive with prices between $70 and $90.”

Global oversupply

Iron ore shipped from Australia’s Port Hedland, the world’s biggest bulk-export terminal, climbed to a record 37.5-million tonnes last month from 36.3-million in September and 28.9-million in October 2013.

A rally in the iron ore market in the final weeks of this year has been forecast by some analysts, according to reports.

Iron ore may climb at the year-end as mills restock and some high-cost mines close, investment research firm Sanford C Bernstein said.

Prices would probably climb towards $100 by the end of the year, UBS said.

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