Iron ore forecasts
Analysts have been proven right again after the recent slide in iron ore prices. On account of oversupply and weaker demand, analysts have long been predicting a downturn in iron ore prices. The long-term fundamentals for iron ore (COMT) (DBC) prices remain bearish. Many analysts have commented on the outlook of iron ore prices in their recent pieces. Most discuss the further downside to prices. In this article, we’ll discuss the takes of various analysts on the iron ore price slide as well as their forecasts.
Morgan Stanley and Citi expect further downside
Morgan Stanley (MS) cut its iron ore price forecast for the third and fourth quarters of 2017. These cuts were driven by the firm’s belief of rising low-cost production, which would lead to the surplus increasing every year through 2021. MS is now forecasting prices to average $50 per ton for 3Q17, which is a decline of 23% compared to its previous estimate. The forecast for 4Q17 was also revised down 15% to $55 per ton in 4Q17.
Citi Group (C) holds a similar view regarding the future outlook of iron ore prices. It’s worried about the increasing glut amid slowing Chinese demand. It predicts prices to average $51 in the third quarter and $48 per ton in the last quarter of 2017. In the long term, it believes prices need to be lower than $45 per ton for the market to rebalance.
Axiom, which is bearish on the iron ore and steel sectors, has suggested adding shorts in Cliffs Natural Resources (CLF), Rio Tinto (RIO), U.S. Steel (X), and Fortescue Metals Group (FSUGY) due to the expected bearish trend in iron ore prices.
UBS expects stable prices
UBS analysts, however, hold a slightly different view regarding the outlook for steel-making (SLX) commodities. It believes iron ore prices should remain stable over the next three months. The firm attributes strong steel demand from China’s property and infrastructure as the main reason for this expectation. UBS believes the weakness in China’s property sector due to credit restrictions should be offset by strong demand from the infrastructure sector.