Iron ore prices to fall below $35 per ton through 2018, says Citigroup

Jan 15, 2016 12:23 GMT   Source:scrapmonster

By Paul Ploumis (ScrapMonster Author)

January 15, 2016 02:57:56 AM

SPOKANE (Scrap Monster): Citigroup has cut its iron ore price estimates for 2016 through 2018 on account of declining global demand for the steel making raw material.

The investment bank cuts its estimates for this year to $36 per ton, down from the estimates of $41 per ton provided during November last year. It also slashed its estimate for 2017 and 2018 to $35 per ton each. The bank had earlier expected iron ore prices to be around $39 per ton and $40 per ton in 2017 and 2018 respectively. The base-forecast for the three-year period was reduced from $40 to $35. The prices could even hit $28 in worst-case scenario.

Citigroup states that curtailment of more existing supplies has to happen during this year through 2018. The price estimates are on the assumption that roughly around 100 million tons of global iron ore supply will be cut by 2017. The bank also expects curtailment of nearly 200 million tons of supply in 2018. The largest cuts in supply are expected to come from Australia, followed by Brazil. Also, supply cuts are likely to happen in other iron ore producing countries such as Canada, Iran, Russia and Chile.

Iron ore is likely to face big pressure from demand side. The weak steel demand from China is likely to persist. The iron ore inventory at Chinese ports is currently at seven-month highs at 93 million tonnes. The steel output by the country is estimated to decline by 2.6% during this year on account of falling domestic consumption and exports. Official data released by Chinese authorities indicate that yearly iron ore imports by the country rose marginally by 2.2% to total 952.72 million tons in 2015.

In an earlier price forecast, Capital Economics had warned of the possibility of sub-$30 levels during the year. More alarmingly, the prices may slump to $20 during the first half of 2016 on rising supply, followed by a rally during latter half of the year.