SINGAPORE – Iron-ore may take longer to bottom out as China steps up efforts to support the economy and as miners’ costs may climb, according to Citigroup, which raised its forecasts by as much as 21%.

The raw material is expected to trade at $48/t in the third quarter and $46 in the final three months, compared with previous estimates of $46/t and $38/t, Citigroup said in a report Tuesday. Prices will average $49/t this year and $42/t the year after, before sinking to $38/t through 2019, it said.

After three years of sliding prices, iron-ore has advanced in 2016 as China’s steel output rose to a record and policy makers said they’d support economic growth, catching many analysts off guard who were forecasting a fourth year of losses. The demand revival spurred a speculative rally that boosted prices in the three months to April.

“China demand may surprise to the upside,” Citigroup analysts including Tracy Liao said, adding that the government will probably maintain short-term stimulus to prop up the economy. “We remain bearish on medium-term iron-ore prices, and expect the seaborne market to spend a longer time finding lows.”

Ore with 62% content rose 2.1% to $51.11 a dry ton on Monday after surging 3.9% on Friday, according to Metal Bulletin. While prices are up 17% this year, they’re still well shy of April’s high of $70.46/t.

SPECULATIVE FUNDS
Iron-ore has retraced gains as the surge in futures trading in China prompted regulators and exchanges to step in and tighten rules to cool off prices. The explosion has probably come to an end as speculative funds may have flowed out of the commodities sector and returned to stock and bond markets, according to Citigroup.

Uncertainties in iron ore demand persist as the steel sector benefits from China’s pursuit of short-term growth through monetary easing and fiscal expansion, the analysts wrote. While stimulus policies support demand in the near term, they’ll prolong the removal of excess steel capacity, according to the bank.

Prices may also be supported by a potential increase in miners’ costs. The “massive” cost deflation in the past two years, helped by lower oil prices and depreciation in producers’ currencies, may have come to an end, the bank said