Zurich-based UBS AG and Commonwealth Bank of Australia on Thursday downgraded their forecasts for the market, cutting their projections for iron-ore and coal prices.
But when it comes to iron ore, Citigroup is undoubtedly the most bearish. It projects the market will average just US$58 a metric ton in 2015. That is 11% below its previous projection and well below current iron-ore prices around US$68 a ton.
The bank also sharply reduced its forecasts for coking and thermal coals.
That is bad news for China’s own mining companies and producers and countries elsewhere that aren’t witnessing the same currency downturn. Prices for both commodities had already plunged in recent years due to a surge in supply, crimping earnings as operations planned when prices were booming had finally started production.
By contrast, the prospect of weaker prices is yet another boon for buyers like China’s steelmakers who consume more than half the world’s iron ore and Japan’s power plants that have relied more heavily on coal since the 2011 Fukushima disaster halted nuclear-energy generation.
Australian investment bank Macquarie on Thursday cut its iron-ore forecasts for the next three years by 19%-26%. It expects an average of just US$61.53 a ton this year, and US$58.18 a ton in 2016.
It also took a knife to its thermal-coal projections, cutting them between 13% and 21% over each of the next three years. It forecasts an average coal price of US$57 a ton this year, although it expects a pick up to US$63 a ton in 2016.
Macquarie’s reasons are similar to Citigroup’s. It said that depreciating currencies and falling oil prices—coupled with existing headwinds such as oversupply and China’s slowdown—will mean it would be some time before commodities are valued much higher than what they cost to produce and ship.
Source: The Wall Street Journal
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