Where Investment Bankers Think Iron Ore Prices Are Headed
Commonwealth Bank of Australia
According to Commonwealth Bank of Australia mining and energy commodities analyst Vivek Dhar, the iron ore price scenario is not looking good. He said, “the main implication from Australia’s Department of Industry forecasts is that more incremental seaborne tonnes of iron ore are expected in 2017 than 2016,” adding that “this view is consistent with guidance from the world’s major iron ore producers, who together account for ~80% of the seaborne market. These producers are expected to add ~75Mt1 next year, up from ~55Mt this year.”
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Some analysts have upgraded their short-term forecasts for iron ore as the commodity remains supported in the short term due to Chinese construction demand. Morgan Stanley upgraded its iron ore price forecasts by 11% and 27% for 2016 and 2017, respectively.
Goldman Sachs is bearish on iron ore
Goldman Sachs is still quite bearish on the commodity. The bank stated that “longer term, we remain bearish towards the supply-demand dynamics of the iron ore market, as fundamentals continue to point towards rising iron ore inventories in the second half of 2016, coupled with the looming supply-side capacity curtailment to the Chinese steel industry.” The bank also cited the recent string shipment data from Australia to support its view.
Credit Suisse’s view
Credit Suisse (CS), on the other hand, believes that share prices for miners have corrected and, considering China’s stimulus measures, they don’t deserve an “underperform.” The bank expects China’s (MCHI) steel production to surpass 800 million tons in 2016 and iron ore prices to average $54 per ton in 2016. However, it kept its forecast for 2017 unchanged at $45 per ton. The fall in the expected price is mainly due to supply additions that are expected to hit the market in 2017. Going forward, these additions could pressure the cash flow of miners such as BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE).
- megatons ↩