Fortescue predicts iron ore price drop The head of Fortescue Metals Group, Australia's third-biggest iron ore producer, expects the price of the steelmaking commodity to decline this year as the Chinese restocking cycle ends and new supply from expansion projects comes to market. Nev Power, chief executive, said he expected the benchmark price to average US$120 a tonne in 2013, down from its current level of US$147.70. But he said the price would be underpinned around US$120 by the pro-growth policies of the Chinese government. Mr Power said that, with China's new leadership starting to "rejuvenate programmes of economic growth and urbanisation," demand for steel would rise and support iron prices. He was speaking after Fortescue joined larger rivals BHP Billiton and Rio Tinto in reporting record quarterly iron ore shipments. Iron ore is critical for the profitability of the world's biggest mining groups - Fortescue, BHP, Vale and Rio - as well as steelmakers including ArcelorMittal and Baosteel. It is forecast to account for more than half BHP's earnings this year and more than 75 per cent of profits at Rio. The commodity is also a key driver of economic growth in Australia, the world's biggest supplier of seaborne iron ore. A plunge in prices last year prompted the ruling Labor government to abandon its pledge to deliver a budget surplus in 2013. But since hitting a three-year low of US$86.70 in September, the price of iron ore has surged more than 82 per cent, reaching US$158.50 a tonne earlier this month on the back of restocking by Chinese steel mills. The price has declined as buyers have stepped back from the market ahead of Chinese New Year, which falls in February this year, but it has stabilised around US$147.70 this week on concerns that the cyclone season in Australia and Brazil could disrupt shipments. While the price could hold or even move higher in the near term, many analysts and economists are sceptical it can be sustained over the year as the Chinese restocking cycling ends and major producers increase output. UBS expects the spot price to hit US$110 by the end of the year. "We forecast supply growth being outstripped by a seasonal lift in ore-buying during the first half - a fleeting deficit condition that chiefly reflects a lack of Indian ore, and declining export flows from Vale," said Tom Price, a Sydney-based commodities analyst at UBS. But the shortfall is expected to be progressively offset by a relentless supply lift from Australia's major producers. Australia's three largest miners - BHP, Fortescue and Rio - are on track to produce a record 550m tonnes of iron ore this year, up from 469m tonnes in 2012. Fortescue, which has ambitious expansion plans, is expected to account for around half of that growth. Mr Power said the miner had shipped 8.5 tonnes of ore in December - an annualised production rate of 102m tonnes - and confirmed that a plan to increase output to 155m tonnes by the end of the year was on track and budget. Fortescue in September mothballed plans to develop a new 40m tonne deposit following the collapse in the iron ore price. But after a US$5bn debt refinancing and asset sales the project, in the Pilbara region of Western Australia, was reactivated last month. If the iron ore price does hold at current levels it would be a big boost to Fortescue, which has production costs, including shipping and royalties, of around US$70 a tonne. In the December quarter Fortescue received an average price of US$111 a tonne for its iron ore.