GOLDMAN Sachs analysts are confident the iron ore price rout, which has seen prices fall close to 30 per cent in 2014, is not yet over, Bloomberg reports.
The view is in sharp contrast to that of analysts at Westpac, with the Australian bank’s lead economist tipping prices to lift 30 per cent from current levels of $US95 a tonne.
The US-based investment bank, on the other hand, has reiterated its forecast for prices to slump to an average of $US80 a tonne next year.
Such a development would place extreme stress on a number of junior players in the market as well as curb the profits of mining giants Rio Tinto and BHP Billiton.
Goldman contends that the expansion of supply has not fully worked its way through the market, leaving plenty of room for price falls amid demand worries.
“The shift to oversupply started barely six months ago and the adjustment phase is far from over,” Goldman analysts Christian Lelong and Amber Cai said, according to Bloomberg.
“Seaborne supply is set to accelerate again in 2015 while Chinese steel production growth slows further.”
The comments follow recent worries outlined by iron ore heavyweight Vale, which advised last week that the global iron ore market was not balanced as an onslaught of supply failed to marry with weakening demand.
“Despite this not-very-favourable [demand] scenario, the seaborne market is growing almost 20 per cent from the previous year, demonstrating that there is a big potential to displace less-competitive producers,” Jose Carlos Martins, executive director of Vale’s ferrous and strategy division, said.
“I think this phenomenon will continue.”
On June 16 the iron ore price slipped to its lowest level in almost two years, as prices drifted to $US89 a tonne.
Should the $80 a tonne level be reached, it would represent the lowest mark for the commodity since late 2009. Such a price would place pressure on several Australian miners, including Fortescue Metals, BC Iron and Atlas Iron.
Atlas is believed to be one of the most exposed to pricing movements, with a break-even price of about $US82 a tonne.
BC Iron, meanwhile, is adamant the pricing pressures are easing, yesterday tipping the iron ore price to again head back above $100 a tonne in the next six months as recent trends mirrored a similar pricing event in 2012.
“Prices came down and discounts on tier-two iron ore creeped up a bit and then they came back again, and I think we’re seeing that again,” BC Iron chief executive, Morgan Ball, said.
“I’d like to think it will be above $US100 per tonne [in six months’ time].”
Such optimism marries with a report from Westpac senior economist Justin Smirk this week, which suggested prices could again rise above $US120 a tonne within the next 12 months.
“We are likely to see softer near-term growth in ore supply overall as Chinese and other sources of ore moderate production,” Smirk wrote in a report on Wednesday, Bloomberg said. “Any near-term upside surprise in demand will be a positive for prices.”
Source: The Australian
- metaljunction »
- Metal News
Metal News & Events
METALJUNCTION PUBLICATIONS
Coal Insights (English) Monthly
Coal Insights is a ready reckoner for anyone associated with coal. This publication is aimed at tracking everything related to coal in India.
India Coal Market Watch(English) Monthly
ICMW is a one-stop source for all news, data and research pertaining to coal demand, consumption, stocks, spot- and long-term prices with respect to the Indian Market.
India Steel Market Watch (English) Monthly
ISMW is a brand new high-end steel market report, covering all aspects of the steel industry in India.
Steel Insights(English) Monthly
Steel Insights delves into various facets of the domestic and global steel industry such as market fundamentals, raw material price trends, price forecasts etc.