Iron to ‘Correct Down Sharply’ as Supply Rises, Citigroup Saysby
Bank raises price forecasts for opening quarters of the year
Fourth-quarter outlook is maintained at $53 a ton, bank says
Iron ore is headed for a sharp decline as higher-grade supplies from Brazil and Australia are set to increase, according to Citigroup Inc., which combined its forecast for a second-half tumble with upgrades to the bank’s outlook in the opening quarters of the year.
Recent gains have been supported by a deficit in higher-grade material, analysts including Ed Morse said in a note received Monday. The bank boosted its first-quarter forecast to $77 a metric ton from $60, raised the second-quarter call to $70 from $57, while holding the fourth-quarter figure at $53.
Iron ore surged last year as government stimulus in China buttressed demand for imports, buoying global miners including Rio Tinto Group, BHP Billiton Ltd. and Vale SA. The unexpected rally was supported by a jump in coal prices, which aided mills’ demand for higher-grade ore to improve efficiency. China’s push to clamp down on pollution that’s fueled smog has also added to demand for premium products, according to Citigroup.
The bank expects “prices to correct down sharply in the second half, with 50 to 60 million tons a year of high-grade ore supply from Brazil and Australia ramping up,” it said in the Jan. 22 note. “Chinese iron ore output may also rise,” it said, citing a forecast from MySteel for a 15 million ton increase.
Ore with 62 percent content in Qingdao rose 0.9 percent to $81.13 a dry ton on Monday, according to Metal Bulletin Ltd. Prices hit a two-year high of $83.65 on Jan. 16 and are up 2.9 percent in 2017 after last year’s surge.
Stockpiles of ore held at ports in China climbed to a record 119.1 million tons last week, according to Shanghai Steelhome Information Technology Co. Citigroup said that as more than 95 percent of the build-up during 2016 was probably low-grade material, the high-grade market remains fairly tight.
While other forecasters including Barclays Plc have also flagged the potential for losses over 2017, some are more optimistic. Iron ore will probably hold its ground in 2017 or may even advance as China’s imports rise, according to a survey of industry participants conducted by Singapore Exchange Ltd., which operates derivatives contracts that help to set global prices.
Iron ore’s surprise jump has benefited miners’ shares. In Brazil, Vale’s stock more than doubled last year, and it has extended gains in 2017. Rio rallied in Sydney last year and the company has risen each week so far in January.