(Adds dropped word "prices" in 11th paragraph)
PERTH, March 11 Iron ore prices are set to
remain at lower levels given increased supplies of the
steel-making ingredient, although the speed of their recent
slump has taken the market by surprise, Citigroup said on
Spot iron ore prices posted their biggest one-day fall in
more than four years on Monday after China's trade balance swung
into deficit and amplified fears of a slowdown in the world's
"The broad move lower is here to stay," Ivan Szpakowski,
commodities strategist at Citi Research, said at an iron
and steel conference in Perth.
"Prices are moving on a cyclical basis due to the increase
in supply. The question had been the timing of it, and the
rapidity of the fall, that's something that had not been
expected," Szpakowski said.
Iron ore for immediate delivery to China .IO62-CNI=SI fell
8.3 percent, its largest one-day percentage fall in 4-1/2 years,
to $104.70 a tonne, its weakest since October 2012, according to
data compiled by The Steel Index.
Mining giant Rio Tinto , which is rapidly
boosting production, said its ramp-up was justified. Price
volatility was expected to give way to stronger underlying
demand growth from China due to urbanisation and the need for
"We continue to see attractive long-term demand for iron
ore, particularly from China," Rio Tinto iron ore chief Andrew
Harding told the conference.
"There will be short-term volatility, proof of which you are
seeing this week," he said.
Rio Tinto is allocating $400 million to help expand its
Pilbara iron ore production capacity to about 350 million tonnes
a year by 2017 in a bid to capture more trade with Chinese steel
Capacity is earmarked to increase by more than 60 million
tonnes a year between 2014 and 2017.
Harding said that lower production prices would help
insulate Rio Tinto from cyclical downturns in iron ore prices.
Efforts were underway to reduce production costs below last
year's average of $20.80 a tonne, down 11 percent from a year
Iron ore prices, which rose above $190 a tonne in 2011, had
been expected to average about $121.50 in 2014, according to a
Reuters poll in January, easing further in 2014 as miners ramped
up supplies of iron ore.
(Reporting by James Regan; Editing by Richard Pullin)