Morgan Stanley and UBS
Morgan Stanley believes pollution control efforts in China would lead to lower demand for iron ore, particularly lower-grade ore. The broker, however, believes iron ore prices should converge through the December quarter as mills turn to lower grades to reduce yields during the seasonally weaker winter months.
UBS also expects Chinese capacity cuts to impact global iron ore demand negatively. The firm, however, thinks the overall impact over winter will be offset by higher steel output in northern cities and the rest of the world. The broker expects iron ore prices to average $60 per ton in the December 2017 and March 2018 quarters.
Macquarie and Capital Economics
According to a report in the Australian Financial Review, Macquarie Group expects iron ore prices to tumble to $54 per ton in 2018.
Capital Economics is even more bearish, with price expectations of $50 per ton by the end of 2017. It expects iron ore to recover slightly in 2018 to end the year at $55 per ton.
Prices after winter: DB and CS’s take
Deutsche Bank (DB) sees benchmark iron ore prices averaging $55 per ton in the first quarter of 2018. The forecast for the second quarter is higher, at $70 per ton. The bank believes China’s capacity cuts will likely create price swings in iron ore. It expects a pick-up in demand in spring, which is likely the reason for its higher estimates of iron ore prices in 2Q18.
Credit Suisse (CS) shared similar observations regarding the iron ore price outlook. The firm believes the currently subdued iron ore demand could surprise to the upside in the first half of 2018.
While the demand in the medium-term might could result in lower commodity prices (COMT), the release of pent-up demand post-winter months could bode well for miners such as Rio Tinto (RIO), BHP (BHP), Vale (VALE), and Cleveland-Cliffs (CLF).