- The iron ore industry is “facing an existential challenge,” Goldman Sachs says as it lowers its iron ore forecast and now sees the price falling to average $52/metric ton this year, $44 in 2016, and $40 in 2017 and 2018.
- First-tier producers will remain profitable although their margins will be squeezed, but as much as half of tier 2 production capacity is at risk, the firm says; tier 1 consists of BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) and Vale (NYSE:VALE).
- That's not a vote of confidence in the big miners who show no signs of slowing production amid weakening demand, which has sent iron ore prices below $50 this month.
- Goldman cuts Rio and Fortescue Metals (OTCQX:FSUMF) to Sell, and Rio will need to utilize its balance sheet to pay dividends, while shares are expensive at 20x 2016 estimated earnings relative to history, the firm says; BHP is downgraded but only to Neutral, as it is the least exposed to iron ore among the big miners.
- Several others - including J.P. Morgan, UBS and Citigroup - cut their iron ore price estimates earlier this month.