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Despite some recent bright spots, the iron ore space is still plagued by bears, with analysts continuing to lower their price forecasts for 2015.
While most commodities have been on a bumpy ride in recent months, iron ore has been one of the hardest hit. Despite some recent bright spots, the space is still plagued by bears, with analysts continuing to lower their price forecasts for 2015.
For instance, the Australia and New Zealand Banking Group (ASX:ANZ) and Goldman Sachs (NYSE:GS) said last week that they see the iron ore price dropping more than $10 to sit in the range of $49 to mid-$50 per tonne. Meanwhile, the Australian government as a whole recently released a 12-month iron ore price estimate of just $48.
On an even bleaker note, on Tuesday, Australia’s Department of Industry and Science cut its forecast by 10 percent, down to $54.40, citing the weak outlook for China’s steel sector. Capital Economics suspects there will be an even bigger dip and sees the price dropping to the $30 range in the second half of the year; the firm expects low-cost suppliers to continue flooding the market.
Not all bad news
All that said, it’s worth looking at the bright spots in the iron ore space mentioned above. One positive factor is the drop in iron ore stocks at Chinese ports that occurred in late May. At that time they were down to their lowest level since December 2013, and Scotiabank’s Patricia Mohr said the restocking was boosting the iron ore price; however, she also said she expected it to take another 12 to 18 months to see a genuine pickup.
Overall, Mohr believes that the closure of high-cost domestic mines in China will be a key driver for boosting the iron ore price down the road. Unfortunately, it seems the Asian nation is taking pains to avoid having to make such closures; not long ago it cut back its resource tax on iron ore by 60 percent in an attempt to support the struggling industry.
Even so, China hasn’t been entirely successful in that endeavor. In this month’s Commodity Price Index, Mohr notes that the iron ore price reached a five-month high of US$65.40 in early June on the back of cutbacks in Chinese domestic mine output.
“China’s steel production, at 340.2 million tonnes or 50.3 percent of the world total, has edged down by -1.6 percent in the year through May, checked by still weak private sector residential construction,” Mohr states in the report. She also points out that while Japan and South Korea also posted declines in steel production, Taiwan’s output advanced and India saw a gain of 6.1 percent.
As mentioned, Mohr doesn’t expect a comeback in the iron ore price for 12 to 18 months, but it’s still nice to see some optimism in the space. At the end of trading on Tuesday, benchmark iron ore for immediate delivery to the port of Tianjin was trading at US$59.30, down 2 percent.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
Related reading:
Iron Ore Price Forecasts Remain bearish Despite Price Rally
Iron Ore Price Boosted as Stocks at Chinese Ports Drop
Australia Halves Iron Ore Price Forecast in 2015 Federal Budget
