Iron Ore Forecast Cut 32% by Citigroup as Goldman Predicts Peak

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Global iron ore demand will contract over the 2020s as steel consumption growth in China peaks, according to Citigroup Inc., which reduced its long-run price forecast for the raw material by 32 percent.

The long-run estimate was cut to $55 a metric ton from $81 as the world’s major mining companies added more cheap supply, analysts including Ivan Szpakowski wrote in a report on Wednesday. From 2016 to 2018, prices may average $40, it said.

“The next decade is shaping up to be a complete reversal of the past decade,” Citigroup said. After a period of rapid demand growth, the entry of new miners and rising costs, the years ahead will see lower demand, marginal producers forced out and major miners dominating supply growth, it said.

Iron ore lost 36 percent in the past year as Rio Tinto Group and BHP Billiton Ltd. in Australia and Brazil’s Vale SA expanded low-cost output to boost supply and cut costs, spurring a glut as China slowed. Major miners remain intent on expansions and a battle for market share is under way as they try to reduce costs faster than prices are dropping, according to Credit Suisse Group AG. Global seaborne demand will probably peak in 2016, Goldman Sachs Group Inc. said in a report on Wednesday.

“Competition in the iron ore market can only intensify,” Goldman analyst Christian Lelong said in the report. “We expect the war of attrition will continue while prices gradually decline toward our $40 a ton” forecast by 2017, he wrote.

Greatest Challenge

Demand for seaborne ore in China will slump to 982 million tons in 2025 from 1.18 billion tons in 2020, Citigroup forecast. Global demand for seaborne ore will drop to 1.57 billion tons from 1.68 billion over the period, it said.

“Perhaps the greatest structural challenge facing the iron ore market is the rolling over of Chinese iron ore demand, driven by declining domestic steel demand and rising scrap availability,’ the bank said. ‘‘As a result, despite growth from other emerging markets, we forecast a decline in global iron ore demand over the 2020s.’’

Ore with 62 percent content at Qingdao, which bottomed at $47.08 a dry ton on April 2, rose 0.5 percent to $63.10 on Wednesday, Metal Bulletin Ltd. data showed. Prices rebounded 34 percent from this year’s low, paring 2015’s loss to 11 percent. They peaked in 2011 at $191.70 a ton.

Combined Production

The two lowest-cost producers, Rio Tinto and BHP, have a pipeline of extremely low-cost projects that should see combined production exceed 900 million tons by 2025, accounting for about 70 percent of global import demand, Citigroup said.

As Australia’s bigger miners become even larger, smaller higher-cost rivals will shrink, it said. Operations at risk include capacity at Mount Gibson Iron Ltd. and BC Iron Ltd., while Atlas Iron Ltd.’s operations may close again, it said.

‘‘We’re bearish about iron ore prices in the medium-to-long term,” BHP Chief Executive Officer Andrew Mackenzie said in an interview this month. Growth in demand is lagging behind the addition of low-cost supply, he said.

Citigroup’s revised long-run price forecast is in line with the norm over the past century or more, according to the bank, which said that when adjusted for inflation, iron ore had averaged about $55 a ton since 1900 in 2014 dollars.

“We thus expect iron ore prices in the longer term to remain low relative to prices of the past decade,” it said, describing the rates of more than $100 a ton seen in recent years as an aberration.

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