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Analysts on Iron Ore: How Much More Downside?

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Dec. 4 2020, Updated 10:53 a.m. ET

Iron ore forecasts

Analysts have long been expecting a downturn in iron ore prices. While analysts upgraded their short-to-medium-term forecasts, they are still not positive about the long-term fundamentals of iron ore (COMT) (DBC).

However, after the recent sell-off in iron ore, some analysts have started expecting a rebound.

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Expecting a rebound

Credit Suisse (CS) analysts believe that the current rebound might sustain in the months ahead. As reported by Business Insider, one CS analyst stated: “Given solid demand on the ground, record iron ore consumption, and our view that the macro environment will be positive into the year end, we believe risks are now weighted to the upside for the iron ore price in Q3.”

CS has a forecast of $70 per ton for iron ore in 3Q17.

Notably, Commonwealth Bank analyst Vivek Dhar also believes that the current rebound in iron ore prices (XME) might extend into the months ahead. Business Insider reports Dhar as stating: “Chinese steel rebar stockpiles are now nearly 30% below the historic average. Together with a rebound in steel mill margins, there is a real chance that iron ore prices could rebound in the short term.”

More to fall

BMI Research expects iron ore prices to drop to $65 per ton in 2017 and to $44 per ton by 2021.

The perpetual bear, Axiom, however, believes that the picture for iron ore prices is still “nightmarish.” Barron’s reported Axiom as stating: “We expect steel supply in China to begin to moderate imminently…stated differently, this suggests iron ore demand is in the process of waning, which, against a backdrop of near-record/record iron ore inventories and aggressive domestic and seaborne iron ore supply, paints a nightmarish picture for iron ore prices over the coming months.”

Due to the expectation of this bearish trend, Axiom has suggested adding shorts in Fortescue Metals Group (FSUGY), Cliffs Natural Resources (CLF), Rio Tinto (RIO), and U.S. Steel (X).

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