Iron Ore Price Forecasts Remain Bearish Despite Price Rally

Despite a rally that saw the iron ore price hit a four-month high on Tuesday, the space continues to face tough criticism. It seems that price forecasts for the base metal grow more bearish no matter how bullish the price action becomes.

For example, Goldman Sachs (NYSE:GS) said in a report released earlier this week that its outlook remains unchanged as it sees Chinese steel consumption contracting. The firm also said it expects seaborne iron ore demand to peak next year. According to Bloomberg, Goldman Sachs analysts Christian Lelong and Amber Cai said in the report that “[t]he rally is living on borrowed time.” They see the price dipping back below $50 per tonne.

Societe Generale (EPA:GLE) also recently downgraded its iron ore price estimate for the next few years, as per The Australian. Analysts from the French firm expect the price to “conservatively” average US$55 per tonne in the near term and to be about US$70 per tonne in the medium term — that’s about US$20 less than its previous outlook.

Price support at current levels

On Monday, a Shanghai-based trader told Platts that buyers’ interest in iron ore has dropped and that they had “received less buying inquiries today as compared to last week and mills are looking to buy in lower volumes for each cargo than before.”

Corroborating that statement, the Financial Times states that Chinese government figures show that iron ore imports to China fell last month due to lower shipments from two of the world’s biggest suppliers. Customs data reportedly shows that China’s imports declined by 11.6 percent month-on-month in May, with a dip in shipments from Brazil and Australia. The Australian decline was due to weather delays and operational issues at Atlas Iron’s (ASX:AGO) mine.

Goldman Sachs notes in its report that lately there’s been a modest improvement in export volumes from Australia; however, that won’t be enough to replenish low Chinese stocks. “In our view, prices should remain well supported at current levels until better performance from the major iron ore exporters compensates for a disappointing couple of months,” the report states.

On Wednesday, the spot price for 62 percent FE iron fines jumped $1.12, or 1.74 percent, to $65.39, according to Metal Bulletin’s iron ore index.

Company news

Iron ore miners have been trying to weather the storm for months, with the volatile price environment causing even large, low-cost producers to take a step back.

Taking another — and possibly safer — route is Century Iron Mines (TSX:FER), which is looking for acquisitions elsewhere in the precious and base metals spaces, according to Reuters. Sandy Chim, the company’s president and CEO, told the news outlet this week that “[i]t doesn’t make good sense to put capital in iron right now, running headlong into all the expansions,” referring to plans from industry giants like Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO), BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BLT) and Vale (NYSE:VALE).

Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article. 

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