Posted on 18 Jan 2016
“There’s a strong possibility that iron ore falls below US$30 in 2016,” Citigroup Inc head of Asia commodity research Ivan Szpakowski said in an interview after the bank cut price forecasts through to 2018 in a report.
In the first half, “the biggest pressure is actually from the demand side. It’s actually going to come from weak steel demand in China,” said Szpakowski.
The raw material was seen at US$36 this year, 12% lower than previously forecast, and US$35 in 2017 and 2018, down from US$39 and US$40, analysts including Szpakowski wrote in the Jan 14 report.
The base-case forecast over a three-year horizon was cut to US$35 from US$40, while the bear-case was put at US$28.
Iron ore has been routed as the world’s largest miners including Rio Tinto Group and BHP Billiton Ltd in Australia and Brazil’s Vale SA expanded low-cost output while demand growth stalled in China.
Lower costs including freight and energy and weakening currencies in producer nations are enabling suppliers to reduce their break-even rates and withstand lower prices. Costs had fallen more than expected, the bank said.
“Given the market’s need for further curtailments, we see the evolution of costs as one of the two most important factors for the iron ore market, alongside Chinese policy decisions affecting steel demand,” the bank said in the report. “We see challenges for iron ore ahead.”
Ore with 62% content delivered to Qingdao slumped 4.1% to US$39.51 a dry tonne on Wednesday, dropping for a seventh day, according to Metal Bulletin Ltd. The steel-making commodity bottomed at US$38.30 on Dec 11, a record in daily prices dating back to May 2009.
Steel output in China would probably shrink 2.6% this year as local consumption weakened and mills encountered stiffer opposition to exports, Szpakowski estimated.
