Iron ore’s price upside

As we discussed earlier in this series, the clampdown on Vale (VALE) is just getting started. There could be repercussions on the company’s use of tailings dams at its iron ore facilities, which could further curtail production.

Therefore, the true impact of Vale’s recent difficulties in terms of iron ore prices is still unknown. Analysts, however, have grown more sanguine in terms of their price estimates.

Which Analysts Expect Iron Ore Prices to Breach $100 and Why?

Commonwealth Bank

According to ABC News, Commonwealth Bank believes that iron ore prices could be heading to $100 per ton. Speaking about the court order leading to the suspension of ~30 million tons of iron ore production for Vale, Commonwealth analyst Vivek Dhar said, “An additional supply disruption of around 30Mtpa could see iron ore prices spike above US$100/tonne.” However, he isn’t that sure about the longevity of the price spike, as Vale might be able to overturn the court ruling, and China’s (FXI) slowdown could keep a lid on commodity prices.

Credit Suisse, Citi, and Goldman Sachs

Credit Suisse (CS) expects iron ore prices to rally further as Chinese markets open next week following the Chinese New Year break. Credit Suisse said, “Three digits looks within reach.”

Citigroup (C) has increased its iron ore price estimate for 2019 by 40% to $88 per ton. It sees tighter regulations in the industry following Vale’s dam burst, which should curtail production elsewhere.

While Goldman Sachs (GS) agrees that iron ore prices should remain elevated in the short term, as supply cannot be adjusted promptly, it expects supply to ramp up in the medium to long term, leading prices to fall back to $60 per ton by 2021.

Higher iron ore prices will be positive for BHP Billiton (BHP), Rio Tinto (RIO), and Cleveland-Cliffs (CLF).

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