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Why Analysts Have Mixed Views on Iron Ore Prices

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Dec. 4 2020, Updated 10:50 a.m. ET

Goldman’s forecasts

Goldman Sachs (GS) is notably still quite bearish on iron ore. The bank stated: “longer term, we remain bearish toward 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 (MCHI) steel industry.” The bank also cited the recent string of shipment data from Australia to support its view.

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Commonwealth Bank

According to a mining and energy commodities analyst at the Commonwealth Bank of Australia, Vivek Dhar, the iron ore price scenario is not looking good. Dhar said, “the main implication from Australia’s Department of Industry forecasts is that more incremental seaborne tons of iron ore are expected in 2017 than 2016.”

Dhar also stated: “this view is consistent with guidance from the world’s major iron ore producers, who together account for ~80% of the seaborne market,” adding that “these producers are expected to add ~75 million tons (or Mt) next year, up from ~55 Mt this year.”

Other brokers’ estimates

TD Securities suggests that some analysts might be too bearish on the iron ore future prospects due to additional supply and Chinese property market concerns.

In August, Westpac Banking mentioned that iron ore prices would average $47 per ton in the third quarter of 2016 but will dive to $38 per ton in 1Q17.

UBS Group also believes that November to December may mark a “death knell” for the commodity. It warned investors not to be complacent in the outlook for iron ore.

Morgan Stanley, however, upgraded its iron ore forecasts. While prices for 2016 saw an upward revision of 11%, prices for 2017 saw an upgrade of 27%. The bank noted that “although we still expect iron ore prices to reach a low in the December quarter of 2016, we view fiscal 2016 as the trough year for free cash flow.”

While brokers have upgraded their short to medium-term forecast, they are still not very positive on the long-term fundamentals of the commodity. 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).

Now let’s see what other banks are saying about the iron ore rally and iron ore mining companies.

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