Citi sees iron ore price back to $100/ton in Q4


Iron ore prices have plunged by a third this year, hovering at ~$94/ton this week, thanks to the rapid growth in supply from Australia and other exporting nations, but Citi believes the supply surge is peaking in Q2 and that H2 of this year should see a leveling off in supply.

While UBS is cautious, Citi says iron ore can find price support at $90/ton and that it sees prices back to $100/ton in Q4; if iron ore were trading at $90, China - a high-cost market - would have to cut 25% of its production, and other producers would have to curtail as well, Citi says.

Iron ore miners are lower today: VALE -0.6%, RIO -1.1%, BHP -0.5%, CLF -0.7%.

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Comments (2)
  • Skaterdude
    , contributor
    Comments (1828) | Send Message
     
    These statements make no sense. First, Citi says essentially that supply isn't increasing as much, and in the face of reduced demand, we're going to go to the same or higher market-clearing price. Go back to Econ 201. The price cannot rise because steel producers will stock up, if they have the money, at lower prices. This pulls future demand forward, reducing the demand later in the year and early next year. If the steel makers don't have the money to stock up, then maybe there's a problem with the viability of the steel makers and, again, demand will fall later.

     

    Second, I don't understand the comment that "China - a high-cost market - would have to cut 25% of its production, and other producers would have to curtail as well." 25% of its production of what? Steel? Iron ore?If they cut steel production, the price of iron ore falls more. If they cut iron ore production, which doesn't go into the international market anyway, then the spot price might rise if the steel makers have not stocked up at the currently lower spot prices.

     

    One blog / commentary site I like (http://bit.ly/1l4XkYD) says:
    "Stocks of imported iron ore at 44 Chinese ports stood at 113.2 million tonnes as of June 6 , down slightly from a record high of 113.6 million tonnes in the previous week, according to industry consultancy Steelhome.

     

    Chinese steel mills are cutting back on long-term iron ore contracts in favour of cheaper spot cargoes on expectations that spot prices are unlikely to rebound strongly anytime soon."

     

    This doesn't bode well.
    10 Jun 2014, 01:31 PM Reply Like
  • Douglas E. Johnston
    , contributor
    Comments (1773) | Send Message
     
    they forgot this

     

    " Prices may average $90 in 2015 and $80 in 2016, Citigroup said today. "
    10 Jun 2014, 02:25 PM Reply Like
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