Iron ore will probably drop 19 percent by the end of the year as demand slows and supply increases, Westpac Banking Corp. said, joining Goldman Sachs Group Inc. in forecasting declining prices.
Ore may fall to $110 a ton by the end of the year, Justin Smirk, the second-most-accurate industrial metals forecaster tracked by Bloomberg over the past eight quarters, said in a report today. Prices may rebound to about $140 a ton in mid-2014 before dropping back to $110 in September, he said. Goldman said last week the steelmaking ingredient was among commodities that may decline at least 15 percent next year.
Iron ore climbed to a two-month high on Nov. 6 as China, the biggest buyer, boosted stockpiles to the highest level in a year. Banks from Goldman to UBS AG expect that supply expansions led by Australian producers will push the seaborne market into surplus next year. The pace of China’s economic growth may slow to 7.4 percent in 2014 from 7.6 percent this year, according to economist estimates compiled by Bloomberg.
“We are now looking for prices to ease by the end of the year, as demand slows and supply picks up a little more,” Smirk, a senior economist at Westpac, said in the report.
Ore with 62 percent iron content delivered to the Chinese port of Tianjin was unchanged at $136.50 a dry ton yesterday, according to The Steel Index Ltd. Prices climbed to $137.10 on Nov. 6, the highest since Sept. 5, paring this year’s loss to 5.8 percent. Iron ore for May delivery on the Dalian Commodity Exchange rose 0.9 percent to 941 yuan ($154) a ton today.
Goldman said last month that prices will average $130 a ton this quarter and $117 a ton in the first quarter of 2014 from $133 in the three months ended Sept. 30. Surging output in Australia, the biggest exporter, will swell the global surplus to 154 million tons, from 24 million tons in 2013, UBS AG says.
The glut may not emerge until the second half of 2014, according to Morgan Stanley. Supply in the seaborne market will fall 25 million tons short of demand in the first half, before a 49 million-ton surplus emerges in the final six months, it said Oct. 7. Prices will average $125 this quarter, $130 in the next and $120 in the three months through June, it said.
Stockpiles in China were 77.86 million tons on Nov. 22, the highest since Nov. 30, 2012, according to Beijing Antaike Development Co. Inventories climbed 18 percent after slumping in March to the lowest since 2009.
Rio Tinto Group, which expects continued demand for raw materials from China, plans to expand output in Australia’s Pilbara region to 360 million tons from 290 million tons. Fortescue Metals Group Ltd. is tripling its capacity in the Pilbara to 155 million tons. The first ore from BHP Billiton Ltd.’s Jimblebar expansion in Western Australia arrived six months early. BHP is the biggest mining company followed by Rio.