Citi’s ‘end of the Iron Age’ note triggers waves of downgrades

Citi’s 'end of the Iron Age' note triggers stocks bloodbath, downgrades

Port Hedland in the iron ore-rich Pilbara region of Western Australia.

Iron ore miners including giants BHP Billiton (ASX:BHP) and Rio Tinto (ASX:RIO) saw their stocks trade slightly lower on Tuesday as Standard and Poor’s (S&P) placed several producers on “credit watch negative” and the International Monetary Fund has revealed it is expecting a further slump in the price of the commodity.

The news came barely a day after Citi analysts shook the market with its “The End of the Iron Age” note, in which they stated that prices would never recover to former levels due to ongoing oversupply and weak demand.

Citi also cut Monday its overall rating on the sector from “bullish” to “neutral” and slashed its forecasts for the price of the metal. The analysts now expect iron ore to average $45 a ton in 2015 and $40 a ton in 2016. These are downgrades of 23% and almost 37%, respectively.

S&P, in turn, cut its forecasts for the iron ore price per tonne to $45 for 2015, $50 for 2016 and $55 for 2017, from earlier estimates of $65, $65 and $70 respectively. “Our price revision moves closer to the current forward price curve and available market data, which in our view reflect a severe supply and demand imbalance in the market, which we believe could persist for the next two years,” the agency said.


The eight iron ore producers being watched by S&P are the Anglo-Australian giants BHP and Rio, Brazil’s Vale (NYSE:VALE), Australia’s Fortescue Metals (ASX:FMG), Anglo American (LON:AAL), Chile’s CAP, the Luxembourg-based Eurasian Resources (LON:ENRC), and South Africa’s Exxaro Resources (JSE:EXX).

Here comes the IMF

Adding to the gloomy predictions of Australia’s Treasurer Joe Hockey, who told the Australian Financial Review (AFR) he anticipated prices hitting $35 a tonne, the IMF said Tuesday it also expect the commodity to keep falling.

“The largest price decline in 2015 is expected for iron ore, which has seen the greatest increase in production capacity from Australia and Brazil,” the IMF said its World Economic Outlook.

Seaborne prices hit Tuesday $50.78 a ton, after trading Monday at a mere $48.8 a ton, according to The Metal Bulletin Index (MBIOI-62), which measures a benchmark of 62% ore.