Continued Slow China Steel Demand To Pull Prices Of Iron Ore Lower, Analysts Predict As Low As $50/Tonne

Analysts are forecasting prices of steelmaking ingredient iron ore could go down further in 2015 to a low $50 per metric tonne spurred by China’s continued low appetite for the raw commodity.

In a quarterly report on Tuesday, analysts Tom Price and Joel Crane from Morgan Stanley said prices of iron ore will average $57 a metric tonne in 2015, while Citigroup Inc said it will hit $50 a metric tonne. It could even go lower.

“Real steel demand -- based on production, net exports, and changes in mill and trader inventories -- suggest significantly negative year-on-year growth for January-February,” Citigroup Inc analyst Ivan Szpakowski said. “We remain bearish iron ore and reiterate our expectation that prices will fall below $50.”

Data from consultancy Steelhome revealed stockpiles of imported iron ore at China's major ports last week were at 99.05 million tonnes. Two weeks ago, it was just above 100 million tonnes.

China expects a property slump as it set an economic growth target of only 7 percent for 2015. But Szpakowski believed what’s hurting iron ore prices is the increasing environmental pressure. “The revised environmental law that came into effect at the beginning of 2015 significantly strengthened enforcement mechanisms, including greatly increasing maximum fines,” he wrote. This observation was affirmed by Citigroup in its report which said that China’s tougher environmental regulations were hurting the overall outlook for steel output.

Morgan Stanley said it expects seaborne supply to go over demand by 129.3 million tonnes in 2017 from just 55 million tonnes forecast this year. As such it lowered quarterly forecasts for this year by as much as 34 percent. It said prices of iron ore will average $63 a tonne in the first three months, then $55 in the second quarter, drop by $50 in the third, and rise to $60 between October and December.

On March 18, Australia’s Department of Industry and Science forecast prices of the steelmaking ingredient iron ore will average $60 per tonne this year. Australia is the world’s biggest exporter of the raw commodity.

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