Posted on 20 Oct 2015
Iron ore will probably rebound next year as China steps up efforts to support the economy including further cuts in interest rates, according to Prestige Economics LLC, which also expects a weaker yuan to support steel exports.
“China’s going to need to do more economic stimulus,” Jason Schenker, president of the Austin, Texas-based firm, said in an interview. Prices will trade between $58 and $68 a metric ton next year, he said by phone. That compares with $53.76 on Friday, according to data on Metal Bulletin Ltd.’s website, and an average of about $58 this year.
Iron ore sagged in 2015 to extend two years of losses as China’s slowest economic growth in a generation hurt demand just as Australian and Brazilian miners boosted low-cost output. The government, which has cut interest rates five times since November, reported third-quarter growth on Monday just ahead of economists’ expectations. Lower rates will help manufacturing to improve, said Schenker, who was ranked by Bloomberg as the best forecaster of base metals such as copper in the third quarter.
‘Exports Will Rise’
“They’ll need to cut interest rates quite a bit more from where they are,” said Schenker, who founded Prestige in 2009. “If they do monetary stimulus, the currency weakens. If the currency weakens because of the monetary stimulus, the exports will rise and rise further.”
China is the world’s top steelmaker, accounting for about half of global output, and is the largest buyer of seaborne ore. The figures on Monday showed gross domestic product rose 6.9 percent in the third quarter from a year earlier. While that beat economists’ estimates for a 6.8 percent gain in the period, it was still the slowest pace since 2009. Data on Monday also showed a decline in crude-steel output.
Iron ore’s bounced back since bottoming at $44.59 a dry ton in July, a record in daily data dating back to May 2009, according to Metal Bulletin Ltd., which tracks ore with 62 percent content delivered to Qingdao. Prices averaged $62.48 in the first quarter, $58.47 in the three months to June and $54.86 in the last three-month period.
Citigroup’s View
Schenker’s outlook for iron ore is similar to the projection from HSBC Holdings Plc, which said last week it expects prices to trade between $50 and $60 over the next year, citing prospects for less local supply. By contrast, Citigroup Inc. has forecast a slump below $40 as Chinese mills rein in production further while low-cost supply gains.
The biggest miners are still adding output, seeking to lower costs per ton and expand sales. Brazil’s Vale SA will report record quarterly output later Monday, according to the average forecast of eight analysts surveyed by Bloomberg. Last week, Australia’s Rio Tinto Group said third-quarter output expanded 12 percent.
As evidence of slower growth piled up this year, China devalued the yuan in August, boosting the competitiveness of its exports. Overseas sales of steel surged to a record 11.25 million tons last month.
