Iron Ore Outlook Cut by ANZ After China Steel Demand Peaks

  • Prices seen `essentially flat' for the next two years
  • Peak-steel consumption passed in 2014, ANZ's Pervan says

Steel consumption in China has peaked and economic growth is cooling, according to Australia & New Zealand Banking Group Ltd., which reduced price forecasts for iron ore and coal for next year and 2017.

Iron ore may average about $52 a metric ton next year, 5.3 percent lower than previously forecast, and $54 in 2017, a reduction of 10.5 percent, Head of Commodity Research Mark Pervan said in a report on Monday. The outlook for coking coal was pared back by as much as 13.5 percent.

“In iron ore in particular we see little upside in prices for the next few years,” Pervan wrote with analyst Anurag Soin. “Lower Chinese growth forecasts have prompted us to lower our steel-demand outlook.”

China accounts for about half of global steel supply, and slower economic growth and a shift by policy makers toward consumption-led expansion hurt local demand and helped drag iron ore prices to the lowest in at least six years in July. While ANZ had forecast steel consumption in the country would peak in 2020, that’s now been brought forward to 2014, according to the report. Credit Suisse Group AG also sees lower Chinese steel output, forecasting a 9.5 percent drop between last year and 2018.

‘Essentially Flat’

“While we still see steel demand recovering mildly in the later part of the decade, in line with a less sluggish housing market, we now forecast that peak-steel consumption occurred in 2014,” Pervan wrote. “Iron ore prices are now expected to be essentially flat for the next two years.”

Ore with 62 percent content delivered to Qingdao retreated 19 percent this year to $57.69 a dry ton on Friday, according to Metal Bulletin Ltd, as the world’s largest miners boosted low-cost production. The commodity bottomed at $44.59 on July 8, a record in data going back to May 2009.

The slowdown in steel consumption within China was spurring an increase in exports as mills sought to find overseas buyers for their output, according to ANZ. Shipments may jump to 107 million tons this year, Pervan forecast.

“To put this in context: China will export the same level of steel as the entire Japanese steel industry (the world’s second-largest steel producer in 2014),” Pervan wrote.

Steel production in China may drop from 823 million tons in 2014 to 812 tons this year and 793 million tons in 2016, Credit Suisse said in a report on Monday. By 2018, it would shrink to 745 million tons, the bank said.

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