A prolonged downturn in steel consumption in China will hurt the outlook for iron ore, according to Australia & New Zealand Banking Group, which cut price forecasts through 2017.
Iron ore will average $US55 a tonne next year, down from an earlier forecast of $US60, and $US60 in 2017, down from $US63, ANZ said in an emailed report on Friday.
The outlook for 2015 was pared by $US1 to $US56 a tonne, with prices seen holding in a range of between $US50 and $US60 over the next 12 months.
The commodity extended a rebound this month from a 10-year low after BHP Billiton deferred some port works in Australia that may slow its growth after 2016 and Vale said it may cut as much as 30 million tonnes of higher-cost output.
The prospect of peak iron ore demand is near after growth in China's steel consumption ground to a halt last year, Goldman Sachs Group said this week.
Rio Tinto Group on Thursday reaffirmed its plans to expand lower-cost output amid a glut.
"A floor price was reached at $US47 a tonne in early April, when iron ore majors BHP Billiton and Vale announced intentions to reduce supply," wrote Mark Pervan, head of commodity research in Melbourne.
"Despite this, we feel fundamentals still look weak. Steel prices have only shown a mildly positive response, and low-cost iron ore supply continues to expand."
Ore with 62 per cent content at Qingdao, which bottomed at $US47.08 on April 2, fell 0.9 per cent to $US60.36 a dry tonne on Thursday for the first drop this week, data from Metal Bulletin show. Prices remain 69 per cent below a 2011 record.
Steel consumption in China will shrink 4 per cent this year and a further 2 per cent in 2016, ANZ said, citing weakness in the property market, which accounts for about 40 per cent of demand. Asia's largest economy grew in the first quarter at the slowest pace since 2009 amid the property slowdown.
"Fundamentals are still bruised by expanded low-cost supply and flat demand," Pervan wrote in the report. "Our price downgrades are for 2016 and 2017 on a prolonged period of weakness in China's steel market."
Source: Bloomberg
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