Could Citibank’s Three-Figure Forecast for Iron Ore Prices Come True?



Citibank recommends participating in the current iron ore price rally

Citibank (C) is advising investors to participate in the current iron ore price (PICK) rally. The bank believes that the iron ore prices are poised to hit $100 per ton. As reported by Bloomberg, Citibank’s global head of commodities research, Ed Morse, said, “Iron ore is not a demand story, it’s a supply story.”

Article continues below advertisement

Supply disruptions

The supply, at least in the short term, is curtailed due to disruptions in Australia as a result of Cyclone Veronica and the dam breach at one of Vale’s mines in Brazil. Morse highlights that the seaborne shipments are very low. This disruption in supply comes right at a time when the data from China (FXI) shows a pick-up in demand.

Chinese stimulus

Due to the latest round of government stimulus, the Chinese economy seems to have picked up some steam. China’s manufacturing PMI (purchasing managers’ index) returned to growth territory in March and hit 50.5 from 49.2 in February. China’s construction activities are picking up after a seasonally weaker period. This along with tighter supply should support iron ore prices. Iron ore prices have already touched the $95 per ton mark. They could reach $100 per ton in the short term owing to the actual and perceived supply tightness.

Until now, iron ore prices were gaining due to the expectations of a deficit. However, March shipments show the actual impact of disruptions. The supply from Brazil has collapsed, while Australian shipments have also declined, which should further lift up the prices, benefitting miners such as BHP Billiton (BHP), Rio Tinto (RIO), and Cleveland Cliffs (CLF).

Citi thus advises that clients “should ‘chase’ this year’s rally, not sell into it.”


More From Market Realist