Iron ore is holding above $50. Just don’t bet on it lasting.
Ever-expanding supplies from the world’s largest producers mean prices will fall through the end of the year, according to Capital Economics Ltd. The London-based research firm joins banks including Goldman Sachs Group Inc. and UBS Group AG in predicting lower prices.
The steel-making ingredient will drop to $50 a metric ton at the end of September and $45 by the end of the year, said Caroline Bain, a senior commodities economist at Capital Economics. Ore with 62 percent content advanced 3.9 percent to $56.04 a ton on Friday, according to Metal Bulletin Ltd. It’s 4.9 percent higher this month, having bottomed at $44.59 a ton on July 8.
“The catalyst for the renewed decline will mainly be on the supply side as the Australian producers continue to ramp-up output,” she said by e-mail. Mining giants Rio Tinto Group and BHP Billiton Ltd. are increasing production to boost sales volumes and cut costs, expanding a glut even as China, the biggest buyer, slows.
New Supply
Then there’s new supply due to appear on the market, in the form of ore from Australian billionaire Gina Rinehart’s A$10 billion ($7.1 billion) Roy Hill mine that will come on line later this year, Bain said. Rio Tinto is forecasting new supply will total 110 million tons this year.
Iron ore has got a fillip in recent weeks as steelmakers in China increased output ahead of government-mandated production cuts at some mills to ensure clean air in Beijing for its Sept. 3 World War II victory parade, according to Wu Zhili, an analyst at Shenhua Futures Co. in Shenzhen.
Looming Cuts
Looming steel production cuts of as much as 2.5 million tons will weaken demand for the raw material, Barclays Plc said in a note received Monday.
Goldman forecast iron ore averaging $48 a ton in the final three months of 2015, according to a report dated Aug. 14. Jeremy Sussman, an analyst at Clarksons Platou Securities Ltd., is more bearish, estimating an average of $40 a ton. UBS forecast on Aug. 17 that iron would average $51 a ton in the second half.
Source : Bloomberg