Iron ore prices may extend their slump and move into the low $40s/metric ton over the next 6-8 months, Citigroup says, after already sinking by more than a third since rising to nearly $95 in February as a global supply glut increases.
Citi sees iron ore at $51/metric ton in Q3 compared with a previous estimate of $64, and at $48/metric ton in Q4 vs. its earlier outlook for $60.
The pullback in iron ore is in contrast to surging prices of steel reinforcement bar, and Citigroup estimates that mills have ramped up output to a maximum because of the robust margins.
Citi forecasts an iron ore surplus of 118M tons in 2017 after a glut of more than 60M tons last year, with ongoing expansion by large miners, notably Vale’s (VALE -3.5%) S11D project and Roy Hill, likely contributing ~60M tons of additional supply this year.
Citi cuts its stock price targets for BHP Billiton (BHP -3.6%) and Rio Tinto (RIO -3.4%) while keeping Buy ratings on both, but it cuts Fortescue Metals (OTCQX:FSUMF +0.3%) to Sell from Neutral, saying the company faces a “double whammy” of lower prices and higher discounts for low-grade products.
Source: seekingalpha