Iron ore to slide below $46 a tonne by 2021 — analysts
The rally in iron ore prices that saw the commodity climbing near $100 a tonne earlier this year will likely be the highest mark seaborne will reach for at least the next five years, a new report published Tuesday shows.
According to BMI Research, prices will continue to slide for at least the next half decade, averaging lower each year through to 2021. The forecasters expect the commodity to drop to $70 a tonne this year, $55 in 2018, and decline to $46 by 2021, on rising supplies from Australia and Brazil and expectations for a surplus.
Major producers, backed by low costs, will continue to boost output and so drag prices down, the research arm of Fitch Group said in the report.
After peaking in mid-February, the steelmaking raw material fell into a bear market earlier this month as steel prices dropped and warnings about oversupply reappeared on the back fresh output coming from recently opened mines, such as Roy Hill in Australia, as well as Anglo American’s Minas Rio and Vale’s S11D in Brazil.
Last year, ore with 62% content in the port of Qingdao climber over 80%, extending the rally into 2017 to hit $94.86 in February, the highest price since 2014, according to the Metal Bulletin. It then began a painful and abrupt downward trend, falling 12% last month and continuing to drop in April. On Tuesday, the commodity lost another 46 cents to trade $66.07 a tonne.
The knock-on effect on the market value of the world’s top iron ore miners has not been minor, with world number four, Australia’s Fortescue Metals Group (ASX:FMG), a pure play iron ore producer, hardest hit. FMG stock has about 15% of its value over the last month and the Perth-based firm is now worth US$16.53 billion on the ASX following a 2.6% drop in Tuesday trading.
World number one Vale (NYSE:VALE) is down almost 6% over the same period, while diversified giants Rio Tinto (ASX, LON:RIO) and BHP Billiton (ASX:BHP) have also seen their value shrink since mid-March.
Several forecasters and banks had long warned the rally was not sustainable. Last week, Macquarie added to the gloomy sentiment by predicting that iron ore would continue to decline until finding support at around $50 a tonne, implying that falls of a further 20% were in store.
But not everyone is that pessimistic. For some, such as Stan Wholley, president for the Americas at CSA Global, the current downtrend is nothing but an expected correction. “I think people got exuberant about iron ore on the way up and we are seeing a bit of reality check right now,” he recently told MINING.com.
“There is not a great deal that can be done about the new supply — it will happen. However, there are indications that stockpiles in China are decreasing (albeit from record highs) which may slow or even halt the decline,” he noted.
While the analyst sees the commodity trading between $50 and $70 a tonne in the short term, he says fundamentals remain sound.
“There will be a focus on higher quality ores over the next few years as new supply comes in, but that is how it should be, and this will mean producers with lower quality ores will feel the pinch as buyers seek a discount,” Wholley warns.