Iron ore will lead declines among metals this year as the biggest producers in Australia and Brazil expand low-cost supplies further while demand remains weak, according to the World Bank, which cut price forecasts.
The raw material will average $63 a metric ton this year, the Washington-based lender said in its quarterly commodities report on Wednesday. That compares with the estimate of $75 given in the bank’s January’s report. The forecast for 2016 was cut to $66.60 from $77.90.
Iron ore sank below $50 a ton to a 10-year low this month as surging low-cost supply from Rio Tinto Group and BHP Billiton boosted a glut just as China’s economy slowed. That prompted at least seven banks including Goldman Sachs Group Inc. to reduce their price forecasts in April. BHP said on Wednesday it’ll defer some port works in Australia, slowing the supplier’s path to a production target of 290 million tons a year.
“More new low-cost capacity is coming online in the next two years,” the World Bank said. “Demand from the steel industry, which consumes nearly all iron ore output, was weak in the first quarter, continuing a year-long trend.”
Ore with 62 percent content at Qingdao rose 5.9 percent to $54.04 a dry ton on Wednesday after BHP’s announcement, according to Metal Bulletin Ltd. It fell to $47.08 on April 2, the lowest level since 2005, based on daily and weekly data from Metal Bulletin and annual benchmarks from Clarkson Plc.
Global seaborne output will exceed demand by 45 million tons this year and 215 million tons in 2018, according to UBS Group AG, which predicts prices of $50 in 2015. Citigroup Inc. sees prices in the $30s in the second half of this year.
China, which consumes two-thirds of ore shipped by sea, slowed last year to the weakest pace since 1990. The country’s steel demand will shrink this year and next to extend the first annual drop since 1995, the World Steel Association said Monday.