Iron ore will decline over the rest of the year as supply increases and a rally spurred by restocking in leading global importer China ends, according to Morgan Stanley.
The price probably peaked at about $159 a metric ton last month and will average $133 this year, analysts Joel Crane and Peter Richardson said in a report today. The consensus forecast for 2013 is $121, a figure that’s “overly negative,” they wrote. Global seaborne supply will rise 9.1 percent this year, topping an 8.3 percent gain in demand, Morgan Stanley estimates.
Morgan Stanley joins analysts from Deutsche Bank AG to Bank of America Corp. in forecasting lower iron-ore prices. The steelmaking commodity rallied 68 percent since September as economic growth in China accelerated and port inventories in the country reached a three-year low. The surge was caused by changes in demand, market speculation and “unreasonable” pricing methods, China’s top planning body said.
“The latest data points for steel inventories with traders and mills show that stocks have experienced a typical, seasonal rebuild,” the Morgan Stanley analysts wrote. “The spot iron ore price likely peaked last month.”
Iron ore with 62 percent content delivered to the Chinese port of Tianjin rose 0.3 percent to $146.30 a dry ton today, according to data from The Steel Index Ltd. The global benchmark reached $158.90 on Feb. 20, the highest since Oct. 13, 2011. It bottomed at $86.70 on Sept. 5.
Chinese steelmakers restocked iron ore during the winter and increased purchases as confidence in the economy improved, the National Development and Reform Commission said in a statement on its website. The three largest mining companies and some traders either delayed or controlled deliveries to make up for previous losses, creating a false impression of short supply, according to the NDRC. Some mining companies also bought iron ore from the market to drive up prices, it said.
In response, BHP Billiton Ltd. said it produced record volumes of iron ore in the second half of 2012, all of which it sold and delivered to the market. Vale SA, the biggest iron-ore producer, declined to comment on the NDRC statement in an e-mailed reply to questions. A London-based official for Rio Tinto Group, the second-largest exporter, declined to comment. The three companies together supplied 63 percent of the world’s seaborne iron ore last year, Morgan Stanley figures show.
“This is 600 Chinese mills versus 1,500-plus miners and the market is actually very liquid,” Melinda Moore, a bulk-commodities analyst at Standard Bank Plc in London, said by phone today. “I don’t expect it to have an impact on price. It’s hard to know what the NDRC are trying to achieve with this because markets work as markets work.”
The raw material may average $142 a ton in the first quarter, $135 in the second, $125 in the third and $130 in the final three months, the Morgan Stanley analysts said. That compares with the consensus outlook of $127, $122, $117 and $117, they said.
“We think the calendar-year consensus forecast is overly negative,” they wrote in the report, according to which prices are easing, not collapsing. “The level the market is willing to pay for iron ore exposure is far below our expectations.”
Iron ore may drop to $115 a ton by year end, Deutsche Bank said March 1. The commodity may tumble to $70 in the three months through September after trading between $130 and $160 through June, Tom Price, a Sydney-based UBS AG analyst, said Feb. 26.
Vale said Feb. 28 that while first-half prices may be better, they “may suffer a bit” in the second because of supply increases, according to Jose Carlos Martins, head of ferrous and strategy. The Rio de Janeiro-based company reported a record quarterly loss that day.
Swaps show expectations for lower prices this year. The March contract fell 0.5 percent to $144.75 a ton as of 10:46 a.m. in London, with September’s trading at $124.75 and December’s at $120.75, according to GFI Group Inc.
Prices tend to ease after the first quarter once mills conclude restocking, National Australia Bank Ltd. said in a March 4 report. The so-called temporary factors underlying the recent rally should taper off, causing prices to drop, it said.
Inventories at Chinese ports rose for a second week to 68.9 million tons on March 1, according to data from researcher Beijing Antaike Information Development Co. Stockpiles fell to 66.89 million tons on Feb. 1, the lowest level since January 2010, and remain 30 percent lower than a year ago.
“Indicators of iron ore inventory at the ports show stocks remain well below normal levels, which will continue to provide support,” the Morgan Stanley analysts said. “Chinese steel production remains strong, and will grow 2.6 percent.”
Iron ore is measured in dry tons, or metric tons less moisture. At Tianjin, moisture can account for 8 percent to 10 percent of the weight. Australia and Brazil are the world’s two biggest exporters.