Morgan Stanley Raises Third Quarter Iron Ore Price on China

Morgan Stanley raised its forecast for iron ore prices in the third quarter on prospects that demand will improve in China, the world’s biggest buyer.

Ore with 62 percent iron content delivered to China may average $128 a ton, up from $125 estimated in January, analysts Peter Richardson and Joel Crane said in a quarterly report today. While the bank cut its forecast for the final three months to $125 from $130, it kept its 2013 estimate at $133. The prediction for 2014 was reduced by 3 percent to $117 a ton.

Prices tumbled 13 percent from a 16-month high in February as growth in China unexpectedly lost momentum in the first quarter, threatening to curb demand for the steelmaking raw material. Steel reinforcement-bar inventory fell in the week ended April 12 to 9.99 million metric tons, the first time it dropped below 10 million tons in six weeks, according to Shanghai Steelhome Information.

“The latest steel inventory data suggests that finally optimism about improving demand might be rewarded as both mill and distributor inventories have started declining in absolute terms and in days of consumption for the first time in several months,” Morgan Stanley said.

The bank estimates the seaborne market to be in deficit of

16.2 million tons in 2014, from a surplus of 3.3 million tons forecast in January. The surplus for 2015 was raised to 49.8 million tons from the previous forecast of 40.1 million tons.

Seaborne Trade

“Our assessment of the seaborne market balance and price outlook in the light of the supply side issues and the improved prospects for Chinese demand is that 2013 and 2014 will be years in which the seaborne market remains in deficit,” the report said. “We expect the deficit to progressively shrink as new supply is ramped up in Australia, Brazil and South Africa.”

The bank is bearish on supplies from Brazil, the biggest exporter after Australia, cutting its estimate for shipments from Vale SA to 263 million tons this year from 287 million tons estimated in January. China’s demand will total 840 million tons in 2013 from 832 million tons in January, it said.

Iron ore with 62 percent content delivered to the Chinese port of Tianjin was unchanged at $138 a dry ton yesterday, according to The Steel Index Ltd. Morgan Stanley’s third-quarter estimate compares with $135 a ton predicted by Goldman Sachs Group Inc. in March and $115 forecast by Credit Suisse Group AG this month.

Chinese Steel

Steel prices in China may average $635 a ton this year from $645 forecast in January, Morgan Stanley said, as global demand growth remains “sub-par.” The bank reduced its estimate for world crude steel demand to 1.57 billion tons in 2013 from 1.58 billion tons forecast previously.

China’s crude steel production may be 735 million tons this year from 729 million tons estimated in January. The country will spend 650 billion yuan ($105 billion) on rail-related fixed-asset investment in 2013, Rail Minister Sheng Guangzu said in January.

Steel reinforcement-bar for October delivery declined 1.3 percent to close at 3,600 yuan on the Shanghai Futures Exchange today. Prices have dropped 9.7 percent this year.