Iron ore prices have peaked; that’s the message emanating from a widening group of commodities analysts.
Commonwealth Bank of Australia and Fitch Solutions have added their declining forecasts to that of Capital Economics among others after prices surged in January.
The spot price of iron ore is at $US166.88 a tonne, according to Fastmarkets MB; pricing has been little changed during the Lunar New Year break, which extends through Wednesday.
While CBA said it was upgrading its price outlook over the next few years, it was maintaining its “declining profile”.
“Prices are likely to stay high in the first half of 2021 as China’s stimulus measures from 2020 keep China’s steel demand supported,” CBA said. “But by the second half of 2021, we see iron ore prices falling more sharply as policymakers de-prioritise growth in China’s commodity‑intensive sectors.”
Still, CBA is hedging. “We see upside risks to our price outlook given that supply growth will likely struggle again to meet any surprise increase in China’s steel demand this year.
“China’s Two Sessions in early March will prove crucial to China’s policy objectives. If policymakers favour growth again this year, particularly through another infrastructure-led stimulus, iron ore prices will track higher than we’re forecasting. Another key support for iron ore prices this quarter will be the risk that wet weather plays on iron ore shipments from Australia and Brazil.”
As for Fitch, it too too sees a declining price profile ahead for iron ore, saying it believes that last year’s surge “has run its course.
“Prices should grind lower during the first half of 2021 as supply improves and demand growth slows. Nonetheless, the strong gains in iron ore prices during the fourth quarter of 2020 means that we have had to significantly revise up our average price forecasts for 2021 and 2022.”
Fitch forecasts iron ore averaging $US120 a tonne in 2021, $US100 in 2022 and $US85 in 2023, $US75 in 2025 and $US63 by 2030. .“This price decline will be driven by a combination of weaker demand growth and stronger supply loosening the market.”
One key reason for Fitch’s view is a bet that global miners’ profitability will lead to accelerated production.
“We expect that currently high levels of profitability among major global iron ore miners will help underpin strong production growth in the coming years. Global iron ore production growth will accelerate in the coming years, bringing an end to the stagnation that has persisted since iron ore prices hit a decade-low average of $US55 a tonne in 2015.
“We forecast global mine output growth to average 2.4 per cent over 2021-2025 compared to -2.0 per cent over the previous five years. This would lift annual production by 378 million tonnes in 2025 compared to 2020 levels, roughly the equivalent of India and Russia’s combined 2020 output.”
While Fitch sees lower prices, it said there are risks that it’s also too pessimistic. “The significant impact on prices of weak Brazilian supply during 2018-2020 illustrated how vulnerable the global iron ore supply chain is to disruption in a major supplier. Should production growth in one of Australia, Brazil or China disappoint over the coming years, this could result in stronger prices than we currently anticipate.”
Fonte: Financial Review
