As iron ore supply disruptions, at least from Vale (VALE), don’t look likely to go away easily, analysts have started another round of upgrades for iron ore prices.
In March, Credit Suisse (CS) analysts forecasted iron ore prices to average $90 per ton in the June quarter based on the following:
- CS was mainly expecting these prices due to the strength of restocking ahead of construction season as well as supply disruptions.
- As reported by Business Insider, CS has stripped out 50 million tons of iron ore supply from Brazil (EWZ) after Vale’s dam breach in January. That number, however, has now gone up to at least 75 million tons as guided by Vale during its Q4 2018 results.
- CS also increased its estimate for China’s crude steel output by 38 million tons in 2019.
Tighter supply-demand equation
However, now Credit Suisse again seems to be rethinking those numbers as the supply-demand equation is even tighter than it was in March. According to Business Insider, CS said, “Iron ore is looking a lot tighter than we envisaged three weeks ago in our most recent price forecast.”
They are now forecasting a deficit of 30–40 million tons of iron ore supply in 2019. While this deficit will push mills to draw inventories from ports, it will still push up the prices. CS is now estimating that its price forecast for iron ore prices was too low and it may have an upside.
Iron ore miners
An upside to iron ore prices from here would be very beneficial for miners (XME), especially miners producing high-grade ore, including Rio Tinto (RIO) and BHP Billiton (BHP). Cleveland-Cliffs (CLF), on the other hand, would not directly benefit from higher seaborne prices, but it would lead to higher contract prices for the miner.