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Why Is Barclays Optimistic on the Iron Ore Price Outlook?

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Barclays upgrades iron ore price forecast

Barclays is optimistic about the iron ore price outlook given the supply disruptions from Australian miners as well as Vale’s (VALE) dam disaster. As reported by S&P Global Platts, Barclays upgraded the iron ore price forecast from $69 per ton to $75 per ton for 2019. It gave a price forecast of $70 per ton for 2020.

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Upgrades in forecasts

Most of the analysts were waiting for more clarity about the impact on iron ore shipments from Vale’s dam disaster in late January to revise their forecasts. After Vale noted in its Q4 2018 results that it is expecting to produce 75 million tons less than originally expected, many analysts revised their forecasts upwards on supply tightness.

Cautious long-term outlook

Barclays said, “We upgrade prices through the balance of the year but reiterate our expectation that iron ore will decline as we progress through 2019 amid recovering supply and slowing economic growth.”

While Barclays has upgraded iron ore price forecasts in the short term, it doesn’t expect the supply dynamics alone to be able to support the prices in the intermediate to long term. This projection is also based on its expectation of slowing global economic growth, particularly the Chinese economy (FXI).

As supply remained plentiful, the Chinese economy has been the key driver of fortunes for miners (XME) such as Freeport McMoran (FCX), BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE).

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