The company released a report Iron ore supply increases pose risk to market fundamentals and warned that the aggressive push by the big miners would keep iron ore prices low for several years.
 
It comes after BHP Billiton and Rio Tinto announced plans this month to further boost Pilbara capacity, prompting accusations by Western Australian Premier Colin Barnett that the two were deliberately oversupplying the market.
 
Moody’s estimates up to 375 million tonnes of new iron ore supply will enter the market between 2015 and 2018.
 
New capacity will come from Rio, BHP, Vale and Fortescue Metals Group, as well as Anglo American’s new Minas Rio mine in Brazil in 2015 alone.
 
Roy Hill will add another 55Mt per annum of capacity from late next year, while New York-listed steelmaker CSN is adding capacity at its Casa de Pedra mine in Brazil in 2016.
 
Moody’s said the additional capacity would keep weigh negatively on prices, as well as the performance of producers.
 
"Low-cost producers such as BHP Billiton, Rio Tinto and Vale have more tolerance to absorb some degree of lower prices in the near term than Cliffs Natural Resources, Fortescue Metals Group, and Atlas Iron, but the compression of earnings and cash flow is nonetheless value destructive for the sector," Moody’s senior vice president Carol Cowan said.
 
Moody’s has lowered its iron ore price forecasts for between now and 2016 to $US75-85 per tonne for 62% fines, from $95-105/t previously.
 
The iron ore spot price is currently sitting at $80.82/t.
 
Moody’s warned the revision could impact the ratings of producers and has already downgraded Cliffs’ rating to Ba2 and placed the company on review for further downgrade.
 
According to Moody’s the majors were assuming that high-cost producers, particularly in China, would exit the market, but noted that was taking longer to occur.
 
FMG CEO Nev Power echoed that sentiment on Friday.
 
“We’ve been very surprised that the high-cost producers haven’t exited the market because in 2008 and 2012 they did – they exited the market very, very quickly and that’s what caused the iron ore price to restabilise,” he told a Morgans breakfast on Friday.
 
“This time they haven’t done that.
 
“Perhaps because they see the iron ore price will rebound again and therefore they should hang in there.”
 
Rio has denied it is flooding the market with supply, saying it is “filling a void” that would otherwise be filled by a competitor.