SINGAPORE – Iron-ore is headed for a sharp decline as higher-grade supplies from Brazil and Australia are set to increase, according to Citigroup, which combined its forecast for a second-half tumble with upgrades to the bank’s outlook in the opening quarters of the year.
Recent gains have been supported by a deficit in higher-grade material, analysts including Ed Morse said in a note received Monday. The bank boosted its first-quarter forecast to $77 a metric ton from $60, raised the second-quarter call to $70 from $57, while holding the fourth-quarter figure at $53.
Iron-ore surged last year as government stimulus in China buttressed demand for imports, buoying global miners including Rio Tinto, BHP Billiton and Vale. The unexpected rally was supported by a jump in coal prices, which aided mills’ demand for higher-grade ore to improve efficiency. China’s push to clamp down on pollution that’s fuelled smog has also added to demand for premium products, according to Citigroup.
The bank expects “prices to correct down sharply in the second half, with 50- to 60-million tons a year of high-grade ore supply from Brazil and Australia ramping up,” it said in the January 22 note. “Chinese iron-ore output may also rise,” it said, citing a forecast from MySteel for a 15-million ton increase.
Ore with 62% content in Qingdao rose 0.9% to $81.13 a dry ton on Monday, according to Metal Bulletin. Prices hit a two-year high of $83.65 on January 16 and are up 2.9% in 2017 after last year’s surge.
Stockpiles of ore held at ports in China climbed to a record 119.1-million tons last week, according to Shanghai Steelhome Information Technology Co. Citigroup said that as more than 95% of the build-up during 2016 was probably low-grade material, the high-grade market remains fairly tight.
While other forecasters including Barclays have also flagged the potential for losses over 2017, some are more optimistic. Iron ore will probably hold its ground in 2017 or may even advance as China’s imports rise, according to a survey of industry participants conducted by Singapore Exchange, which operates derivatives contracts that help to set global prices.
Iro- ore’s surprise jump has benefited miners’ shares. In Brazil, Vale’s stock more than doubled last year, and it has extended gains in 2017. Rio rallied in Sydney last year and the company has risen each week so far in January.