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Can Iron Ore Prices Continue Defying Analysts’ Forecasts in 2017?

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Pullback expected in 2017

Iron ore prices remained stubbornly high in 2016 despite most analysts’ expecting the contrary. In this article, we’ll see how analysts view iron ore’s prospects in 2017.

According to UBS analyst Geoff Dennis, as reported by Barron’s, “On commodities, while UBS expects oil prices to rise further, we see iron ore prices (average forecast of $56 per ton in 2017) as very vulnerable to the expected slowing of the Chinese economy.”

RBC also believes that iron ore prices are not sustainable at their current levels, and it expects a pullback. Barclays has a similar view, predicting that iron ore prices could fall to as low as $50 per ton by 3Q17.

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Macquarie’s stake

Macquarie is also quite bearish on iron ore’s prospects in 2017, mainly because it expects supply to ramp up from Rio Tinto (RIO), BHP Billiton (BHP), Vale (VALE), and the Roy Hill project. According to theaustralian.com, a Macquarie analyst said, “Higher iron ore prices over 2H16 have clearly resulted in a supply response, which meant that seaborne iron ore shipments for 2016 ended up being 70mt higher than our forecast at the start of the year.”

The analyst added, “We still believe our $US54/t [ton] price forecast for this year is fairly balanced, and clear downside remains from spot price levels near $US80/t.”

Clarksons’ take

Clarksons believes that top miners who take restrained approaches will see limits to their losses in 2017. As cited by Bloomberg, Clarksons believes 2017 “will bring more supply than current pricing can handle, so pricing should see downward pressure from the current $80 a ton levels.”

Consensus take

While brokers have upgraded their short- to medium-term forecasts, they’re still not positive about the long-term fundamentals of the commodity (COMT) (DBC)

A fall in iron ore prices is expected mainly due to the supply additions that are expected to hit the market in 2017. Going forward, these additions could pressure the cash flows of miners such as BHP Billiton and Rio Tinto.

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