Iron ore prices finished 2016 with an 80% increase. The average seaborne iron ore price in 2016 was $58.50 per ton, but investors should note that the consensus called for a further downside.
Iron ore prices started 2017 on a positive note. In addition to the 80% rise in 2016, iron ore prices have risen another 16% year-to-date. Benchmark iron ore prices marched toward $95 per ton in February 2017—the highest level reached since August 2014.
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The outlook going forward in 2017 should be mainly driven by supply growth, which is taking place a little longer than expected. Any further slowdown in supply growth and higher-than-expected demand growth from China in 2017 could act as positive catalysts for iron ore prices.
Iron ore miners had an unexpectedly good year in 2016, and 2017 is turning out to be even better. With stronger iron ore prices, iron ore miners (XME) are reaching new highs. Vale SA (VALE) is leading the miners with a year-to-date gain of 30% through March 14, 2017. Rio Tinto (RIO) and BHP Billiton (BHP) have gained modestly in comparison at 6% and 1%, respectively.
Cliffs Natural Resources (CLF), which outperformed its peers handsomely with an annual rise of 404% in 2016, has gained 9% in 2017 so far. Its APIO (Asia-Pacific Iron Ore) division is directly exposed to seaborne iron ore prices. Cliffs Natural Resources’s pricing for long-term contracts in its US division is also tied to benchmark iron ore prices.
In this series, we’ll look at Wall Street analysts’ recommendations and ratings for iron ore miners. Analysts’ estimates typically lag behind price movements, and we tend to see upgrades after stocks have risen. We typically see downgrades after a company sees lower prices.
In either case, changes in analysts’ estimates are key drivers of short-term price movements. Investors should track changes in analysts’ estimates because they offer insight into what the market expects from a given company.
Next, let’s take a look at analysts’ iron ore price estimates.