GOLDMAN SACHS: Iron Ore Prices Rally but Sees Oversupply Down the Road
By John Rasmussen
Posted: Feb 25, 2013
Iron ore should remain high over the next year or so, but supplies should start overtaking demand soon after, according to Goldman Sachs.
Fueled by optimism of a Chinese recovery, prices have risen nearly 76% since September. Goldman expects that prices stay in the $144 per ton range for the remainder of the year. This number is revised from a previous estimate of $140. They expect that there may be a decline to $126 a dry ton in 2014, down to $90 in 2015 and then an even further drop to $80 in 2016.
JPMorgan Chase revised its forecast as well. Previously, they released an estimate for 2013 of $110, but they are now predicting a price in the $130 per ton range. Deutsche Bank has also released a statement that predicted a rise to $170 for the first half of the year before falling below $120.
Chinese steelmakers generally don't import when prices close in on the $150 a ton mark and they will turn to domestic suppliers. Prices will then begin to taper off, according to JPMorgan's Fraser Jamieson, as those domestic sources and supplies become available.
A spokesman from Goldman stated, "Strong demand growth in China has induced the development of low-grade, high-cost operations that require relatively high prices in order to remain viable,"
China's domestic steel output is predicted to be up by nearly 5% for 2013. Inventories, on the other hand, currently stand at their lowest levels since the beginning of 2011.
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