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Why Goldman and Macquarie Don’t Think Iron Ore Rally Will Last

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Dec. 4 2020, Updated 10:52 a.m. ET

Long-term consensus is bearish

Analysts have increased their short-term iron ore price forecasts due to stronger-than-expected temporary factors. But many on Wall Street are convinced of the rally’s longevity. The Bloomberg median iron ore price forecast is $45 per ton for 2017 and 2018.

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Goldman Sachs is a non-believer in the rally

Goldman Sachs (GS) has warned the Markets that iron ore prices will slump below $40 per ton as supply growth outpaces demand. According to GS analysts Christian Lelong and Amber Cai, “Steel margins and prices could remain volatile in the near-term because inventory levels remain low. However, the window where a tight Chinese steel market acts as the main driver of iron ore prices is coming to a close” (YINN).

The broker has an iron ore price estimate of $55 per ton for 2Q16, which falls to $45 per ton in 3Q16 and $38 per ton in 4Q16.

Macquarie is also bearish

Macquarie is also suggesting a weaker iron ore price period ahead. While the bank raised its forecasts to $50 per ton for 2017, it’s bearish on a medium-to-long-term outlook for iron ore prices. It cut its forecasts for 2018 and 2019. According to the broker, “We believe the situation for 2018 and beyond looks worse than before.” It added, “New low cost supply from Vale and Roy Hill will arrive eventually, while BHP Billiton and Rio Tinto should lift their output on infrastructure improvements and brownfield mine expansions respectively.”

Citigroup (C) is also bearish on iron ore prices. In a report released in May, it said the iron ore “oversupply should extend into the rest of 2016 thanks to planned capacity additions.” Citing capacity additions from BHP Billiton (BHP), Rio Tinto (RIO), Vale SA (VALE), and the Roy Hill project, Citigroup said, “We remain bearish on iron ore.”

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