Iron Ore Outlook Cut by Morgan Stanley as Supply Floods Market

  • Global seaborne surplus will expand to 97 million tons in 2018
  • Prices may stay flat unless top miners act less competitively

Morgan Stanley reduced its iron ore price forecasts by as much as 23 percent as supplies from the biggest producers swamp the market and China’s slowdown hurts demand in the biggest user.

The raw material will average $58 a metric ton this year and remain at about this level through 2018, the bank said in a report e-mailed Wednesday. The outlook for 2016 was cut by 12 percent, while predictions for 2017 and 2018 were lowered by 19 percent and 23 percent, it said.

Low-cost producers including BHP Billiton Ltd. and Rio Tinto Group are expanding output to boost sales and cut costs while smaller mines shut. Iron ore sank in July to the lowest level in at least six years as surging output fed a surplus. While the global seaborne glut is seen shrinking to 65 million tons in 2016 from 79 million tons this year, it will expand to 97 million tons in 2018, Morgan Stanley estimates.

“Australia’s Big Two still have more growth to deliver during 2015-17,” analysts including Tom Price and Joel Crane wrote in the report, referring to BHP and Rio. Prices will trade between $55 and $70 in the medium term, with the chance of an increase if the top producers act less competitively and more strategically on supply growth, they said.

Ore with 62 percent content delivered to Qingdao fell 1.4 percent to $56.05 a ton on Tuesday, according to Metal Bulletin Ltd. Prices bottomed at $44.59 on July 8, a record low for daily price data dating back to May 2009.

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