Morgan Stanley Raises Iron Outlook as Deficit Persists Into 2014

Morgan Stanley increased its iron ore forecasts for the first and second quarters of next year as global demand recovers and the seaborne market remains in deficit well into 2014.

The steelmaking ingredient will average $130 a metric ton in the first three months, $5 more than previously forecast, and $120 in the second quarter, up from $117, analysts Peter Richardson and Joel Crane wrote in a report. Ore will average $120 in 2014, an increase of 3 percent, the analysts wrote.

Iron ore entered a bull market in July as users in China replenished stockpiles that shrank in March to the lowest level since 2009. Australia’s Bureau of Resources and Energy Economics said last week that prices will average $119 in 2014 from $112 forecast in June as surging Chinese consumption absorbs gains in output that are seen pushing the global market into surplus. Morgan Stanley reiterated that its view was above consensus.

“Although we believe market concerns over price into 2014 are warranted, they are overly pessimistic,” the analysts wrote in the report dated yesterday. “Outside of China, steel output growth will see its best year since 2011, led by modest rebounds in production in India, East Asia and North America.”

The seaborne market will extend three years of deficit into the first half of 2014, before shifting to surplus, they wrote. The deficit is forecast to narrow from 71 million tons this half to 25 million tons between January and June next year and then swing to a surplus of 49 million tons in the second half of 2014.

Iron ore with 62 percent content delivered to the Chinese port of Tianjin was at $131.40 a ton yesterday, according to The Steel Index Ltd. Prices have rallied 19 percent from this year’s low on May 31.

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