After Wild Ride, Top Forecaster Sees Iron Sustained in $50s

  • Toronto-Dominion expects prices to average $55 through to June
  • While mine supply expanding, China collapse ‘isn’t imminent’

After what’s been a wild ride, iron ore may be set to calm down. The top forecaster in a Bloomberg ranking says that the commodity will probably average $55 a metric ton this quarter and right on through the first half of 2017 before ticking up to $58 in the second six months.

While there’ll be more low-cost supply that may see prices trend a bit lower from current levels, a pickup in activity in China will probably help them firm in the second half of 2017, according to Toronto-Dominion Bank. Iron ore was at $56.67 a dry ton on Thursday, according to Metal Bulletin Ltd.

“I see the low-cost producers ramping up a bit,” Bart Melek, head of commodity strategy, said in a phone interview. “This is probably why we’re not going to see a big rise in prices anytime soon. There’s a considerable amount of base production at very competitive prices coming up.”

After tumbling in 2014 and 2015 as mine supply rose and China slowed, iron ore went on a switchback ride in the first half of this year as Asia’s top economy boosted stimulus, before prices stabilized. The outlook from TD Bank -- which placed first in the most recent Bloomberg ranking for forecasting iron ore -- suggests that some analysts may now be too bearish amid expectations for further gains in output, as well as concerns China’s property market may be at risk of a slump after prices surged.

“We don’t see any evidence that a collapse is imminent,” said Melek, who’s tracked iron ore for 15 years and also follows steel and base metals. In China, “we really haven’t seen a material jump in construction activity. That’s ultimately why we think demand may be marginally stronger than expected” in future, he said.

Ore with 62 percent content delivered to Qingdao averaged $48.65 in the first quarter as prices began to recover; $55.47 in the second as they peaked then fell back; and $58.36 in the third as volatility ebbed, according to Metal Bulletin. The raw material remains 30 percent higher this year.

Goldman Sachs Group Inc. said this month it sees growing vulnerabilities in China’s property market after a steep run-up in sales and prices following stimulus. That view was echoed by the Australian government, which highlighted rising risks to commodities demand amid an oversupply of homes.

Plenty of banks have more bearish forecasts than Melek, who said TD’s outlook is above consensus. Westpac Banking Corp. said in August it would average $47 a ton this quarter and sink to $38 in the first three months of 2017, citing faltering demand and rising supply. This month, UBS Group AG said November to December may mark a “death knell” for the commodity.

More Supply

Supply is still expected to expand next year. Exports from Australia will rise 8 percent to 877 million tons in 2017, while Brazilian cargoes increase 6 percent to 411 million tons, Australia’s Department of Industry, Innovation and Science estimates. The two are the world’s biggest exporters.

China imported 93 million tons of ore in September, customs figures showed Thursday. That’s the second-highest level on record and compared with 87.7 million tons in August and 86.1 million tons the same month a year ago. In the first nine months, inbound cargoes rose 9.1 percent to 763 million tons.

Combined cargoes from the world’s largest mining companies probably climbed 5.7 percent in the three months to September from a year ago, according to Sanford C. Bernstein & Co. As Vale SA boosted exports, Rio Tinto Group and BHP Billiton Ltd. did less on-year, Bernstein said in a report on Thursday, citing vessel-tracking data.

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