(Minews) - Up to half of iron ore output by miners outside the mega producers in Australia and Brazil is at risk of closure with global demand set to peak next year, Goldman Sachs said.
"We expect seaborne iron ore demand to peak in 2016 as the displacement of marginal Chinese iron ore production fails to offset a contraction in domestic steel consumption," Goldman said in a report in which it slashed its price forecasts.
Goldman cut its 2015 iron ore price estimate by 18 percent to $52 a tonne. It sees the price at $44 in 2016 and at $40 in 2017 and 2018, down 29-33 percent from previous forecasts.
Iron ore, which has fallen 60 percent in 12 months, dropped as far as $46.70 on April 2, the lowest since 2004-2005, based on annual price contracts that preceded the current spot-based system, compiled by Goldman Sachs.
Production volumes among top miners - Vale, Rio Tinto and BHP Billiton - was not at risk, the bank said.
"However, the rest of the industry is now facing an existential challenge," said analysts Christian Lelong and Amber Cai.
About 10 percent of the production capacity of smaller, or Tier 2, iron ore miners is at risk of closure every year through 2019, they said.
"As iron ore prices continue their regression towards pre-2004 levels, the equity value of many Tier 2 producers is likely to be affected," they said.
Australia's Atlas Iron Ltd last week said it was halting production. Days later, China's Sinosteel Midwest Corp said it would suspend iron ore production at its Blue Hills project in Australia.
Vale, Rio and BHP account for around 70 percent of global seaborne iron ore trade, which reached 1.36 billion tonnes last year, shipping most to China.
But a slowing economy has hurt Chinese demand, with steel production shrinking in the first quarter after consumption dropped last year for the first time in three decades.
Chinese steel output is seen contracting by 9 percent over the six-year period through 2019, Goldman said.
"The closure of small, high-cost mines in China will partially offset the impact of soft steel demand on iron ore imports, but the scale of production cuts in domestic iron ore has been relatively modest and we expect seaborne iron ore demand to peak in 2016 at about 1.4 billion tonnes."
Goldman estimates mine closures this year, including in China, to reach 126 million tonnes and 123 million tonnes in 2016.
