Manhattan - Iron ore may tumble about 30 percent over the next 18 months as supply expands while steel demand falters in China, according to Goldman Sachs Group, which said the impact on the market from China’s devaluation was a sideshow.
“Supply is likely to diverge further from demand,” analysts Christian Lelong and Amber Cai wrote in a report. “Contrary to market consensus, we believe that peak-steel production will be followed by a contraction” in China, they wrote, sticking with price forecasts for the next four quarters.
Iron ore rebounded over the past five weeks from the lowest level since at least 2009 as steel prices advanced in China and shipments from the top exporters missed expectations. China’s government devalued the yuan last week, roiling commodities markets and spurring concern that import demand for dollar- denominated raw materials may drop.
“Arguably, the yuan devaluation and the recent supply disruptions are what we consider a sideshow for the iron ore market,” the analysts said in the August 14 note. “Supply growth will resume in the short term.”
Ore with 62 percent delivered to Qingdao rose 0.6 percent to $56.74 a dry metric ton last week to post a fifth straight climb, Metal Bulletin data showed. While the price hit $57.02 on Thursday, the highest since July 1, after blasts in the Chinese port of Tianjin, they’re 20 percent lower this year.
Iron ore was seen by Goldman averaging $49 a ton this quarter, $48 in the final three months of 2015, $46 in the first quarter of next year and $44 the following quarter, according to the Aug. 14 report. That’s unchanged from a July 20 note from the bank. The 2016 forecast of $44 was also retained.
“ After a relatively calm summer, the next phase of balancing will require a further 30 percent price decline over the next 18 months, on our forecast,” Lelong and Cai wrote.
BLOOMBERG