JOHANNESBURG (miningweekly.com) – Fund manager Liberum Capital expects iron-ore supply in the second half of the year to “dwarf” that of the first six months.

Incremental volume growth from the four largest producers in the second half of 2014, at 46-million tons, would be around three times higher than the first half’s 14-million tons.

The latest forecast followed the recent update of Liberum’s iron-ore supply model following the release of the June production numbers and the latest guidance from the four major producers for the 2014 calendar year and 2015 financial year.

The higher output was a larger upswing than had initially been expected, owing largely to relatively weak first-half production from iron-ore giants Vale, Rio Tinto and Fortescue.

“Most of the production issues occurred in the first quarter and the companies have all reiterated full year and 2015 guidance in line with our expectations,” said the firm.

Meanwhile, lower prices in the second quarter of 2014 had impacted on domestic Chinese iron-ore production.

“Assuming 60-million tons of Chinese domestic production is lost this year, the oversupply of iron-ore relative to 2013 is sharply reduced from 89-million tons to a much more palatable 29-million tons, assuming 4% growth in China.

“However, this kind of support is a one-off and won't be repeated again in 2015 in our view,” Liberum stated.

In 2009, when the Japanese fiscal year benchmark price fell to $62/t, Chinese production fell by 73-million tons to 212-million tons.

Assuming this represented the majority of price-elastic supply, the company added that there may be a limited amount of short-run price-elastic supply left.

“Given that we expect a further 130-million tons of incremental supply in 2015, 80% of which has been confirmed by the majors, the oversupply could be in the realm of 43-million tons, more than 50% higher than the 2014 oversupply, after accounting for price-elastic Chinese production,” concluded Liberum.