Iron ore prices have exceeded expectations recently but overperformance may only be temporary due to economic and supply-based factors, Investec Bank said in a note Monday.
Withstanding pockets of stimulus, the longer-term shift in Chinese economic policy away from fixed asset investment towards consumer-based growth may leave iron ore more exposed in the second half of 2015 as industrial activity weakens during the summer, Investec said.
"Iron ore is particularly exposed as peak steel demand (in our view) coincides with increased seaborne supply stemming from major new developments," it said. "Falling input costs, aided by weakening producer currencies, serve only to preserve marginal supply and prolong the down-cycle."
Investec continued to stick to its April 9 forecasts of $54.50/dmt for reference 62% Fe iron ore fines prices CFR China basis.
In 2016, Investec expects prices to average at $57.50/dmt with a recovery to $80/dmt in 2020.
Prices have already fallen away from the low $60s range in June, with Platts IODEX on Monday assessed at $51.25/dmt, down $3.75 since Friday.
"The near term economic outlook is overshadowed by tepid signals from China, signs of weaker than expected US growth and the Grexit issues in the EU," Investec said.
"While the year-end may provide a clearer outlook for the future, including some indication that the sector has bottomed out, we do not expect a meaningful recovery in commodity prices until at least 2017."
source: Platts
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