Bank of America has lifted its fourth-quarter forecast for the price of benchmark iron ore by 10 per cent to $US110 a tonne, pointing to “a surprisingly strong” market.
The bank wasn’t done there.
It also increased its year end forecast for 2021 by $US5 to $US90 a tonne “to reflect a more balanced global supply and demand picture, with stronger Chinese demand forecasts”.
The spot price most recently trade at $US123.47 a tonne, ahead of the past week of holidays in China, according to Fastmarkets MB.
BofA said it also sees prices being supported by a traditionally weather-disrupted first quarter.
While the pace of global shipments is rising – mostly from a return to higher levels from Brazil, China’s continuing demand may lead to another deficit, the bank said.
BofA reiterated its ‘buy’ recommendations on Vale, BHP and Rio.
The bank is now forecasting a global iron ore surplus of just 12 million tonnes in 2021, a negligible percentage of the 1.6 billion tonne seaborne market, assuming Chinese crude steel production grows 1.9 per cent next year after growing an estimated robust 4.3 per cent this year.
“That tiny surplus leaves room for any modest disruption flipping the balance back into deficit.”
The bank also said: “While the premium for higher iron ore content grades widened relative to the benchmark in recent months, relatively weak steel mill profits in China can temper the premium, in our view.”
BofA said its supply and demand models were “imperfect, and currently a forecasted slim surplus suggests the market could remain relatively tight.
“We continue to expect iron ore prices remain higher for longer, although we do not believe recent peaks greater than $US120 a tonne are sustainable,” it said.
“We expect Vale to keep ramping up volume, although Chinese buyers likely build inventory into the fourth quarter to prepare for potential first-quarter weather disruptions, which can support demand and prices.
While global supply is “normalising”, the bank said China’s demand “can continue to surprise”.
Global crude steel output fell 4.2 per cent ytd through August to 1.19Bt, partly offset by Chinese production up 3.7 per cent to 689Mt, resulting in China growing to represent ~60 per cent of global output. “We believe China’s government infrastructure stimulus should continue to support demand into year-end while rest of the world demand also improves.”
Fonte: Australian Financial Reviews
