Why Goldman Sachs Thinks the Iron Ore Price Rally Won’t Last
Is the Recent Iron Ore Price Rally Sustainable?
Consensus is bearish
Currently, iron ore prices are trading at higher levels than most analysts believe are sustainable in the long term. Despite the recent price rally and firmer iron ore prices in general, not many on Wall Street are convinced of the rally’s longevity. The Bloomberg median iron ore price forecast is $42 per ton for 2016 and $44 per ton for 2017.
Analyst estimates for iron ore
On March 15, Morgan Stanley lowered its forecast for iron ore benchmark prices by 14% to $40 per ton for 2016 and by 17% to $37 per ton for 2018. The bank prices should remain in a stable trading range until 3Q15 “buoyed by spring-summer’s more active steel trade, then decline on a seasonal pullback.”
According to Clarksons Platou Securities, “We are heading back down to much lower levels.” Goldman Sachs (GS) is also not convinced about the longevity of the iron ore price rally. It said, “Barring a material increase in Chinese (YINN) (FXI) steel demand in the coming weeks, we believe steel production will decline in 2016 and seaborne demand has essentially peaked. The stream of announced production cuts is bound to resume, in line with long dated iron ore prices that have remained in the low to mid $30s for 2017 and beyond.”
Citigroup (C) is also unconvinced that the recent iron ore price performance signals a sustained rebound in the commodity.
While Credit Suisse (CS) sees iron ore prices remaining elevated in the short term, it expects them to crash later in the year. According to CS, “We expect the tightness will be unwound over 2Q as blast furnaces are restarting, and steel producers migrating towards using higher grade ore to improve output. So steel supply should lift, but we expect demand will remain weak. Without a big infrastructure stimulus or recovery of construction, then the demand side for steel will be missing. The steel price should fade in 2H.”
Most of the analysts are still bearish on the long-term iron ore fundamentals. In the next part of our series, we’ll see what iron ore producers are expecting for iron ore’s future price direction.
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