Goldman Raises Iron Outlook as More Steel Volatility Looms

Updated on
  • Steel-making ingredient seen trading at $50/ton in 3 months
  • Goldman says it maintains long-term price target of $35/ton

Goldman Sachs Group Inc. increased its short-term outlook for iron ore and predicted continued high levels of volatility in steel markets.

Iron ore will trade at $50 a metric ton in three months and $40 in six months, analysts including Christian Lelong and Amber Cai said in a report dated July 27. That’s up from $45 and $35 previously. Ore with 62 percent content at Qingdao in China gained 0.9 percent to $58.63 on Wednesday, according to Metal Bulletin Ltd.

“We maintain the long-term target of $35/t but highlight the potential for continued price volatility until steel inventories normalize,” the analysts wrote. Low steel stockpiles in top producer China have driven large price swings as investors speculating on macro trends target steel and iron ore markets first.

Iron ore’s gains in 2016 have defied warnings that a flood of new supply would overwhelm demand as China’s economy slowed. A credit boom in the first half of the year helped underpin a broad recovery even as port inventories marched to their highest since 2014. “Volatility since the start of 2016 has left the ferrous sector feeling almost like a different commodity,” the analysts wrote.

Beijing’s stimulus measures will prop up iron ore prices for a further 12 months as increased liquidity feeds through to higher steel output, Sanford C. Bernstein analysts said in a report Wednesday.

While a stronger-than-expected dollar could trigger a bearish reaction in steel and iron ore markets, a dovish Federal Reserve and fiscal stimulus in major economies could justify higher port stockpiles and support current spot prices for longer, the Goldman analysts wrote.

— With assistance by Martin Ritchie

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