BREE crushes iron ore forecasts

Australia’s preternaturally bullish commodity forecaster is back with its quarterly rice review and, guess what, it’s dramatically cut prices for this year and next. In December it said:

For 2013 as a whole, spot prices are expected to average around US$126 a tonne (see Figure 1). In 2014, spot prices are forecast to moderate to average around US$119 a tonne.

Now it says:

The average FOB Australia spot price is still expected to average US$111 a tonne for the March quarter and recover later in 2014, led by increasing construction activity in the northern summer that should support a rebound in steel demand (particularly in light of recently announced government spending on urban development projects). However, iron ore prices are not expected to recover to the high levels seen in 2013 due to the increased availability of supplies from new mines starting up in Australia in 2014. For the full year, the FOB Australia spot price is forecast to average $110 a tonne.

That’s one of the most bearish forecasts in the market, almost down to Goldman’s $108. The future is further declines:

The continued increase in seaborne supply through 2014 and 2015 is forecast to drive spot prices lower, to an average of US$103 a tonne in 2015. Price fluctuations are likely to lower prices at times through 2015, but the high cost of China’s domestic production is still expected to support a higher average price for the year. Any sustained period of CFR North China prices below US$100 a tonne should result in higher cost Chinese producers closing down mines if China’s announced market reforms extend to the iron ore industry.

Over the remainder of the outlook period to 2019, continued growth in the availability of seaborne material, coming from large new developments in both Brazil and Australia, are projected to place further downward pressure on iron ore prices. In 2019 the average FOB Australia price is projected to be around US$87 a tonne (in 2014 US dollars).

It’s still not bearish enough but at least it’s now in the right hemisphere. BREE is also forecasting big volume gains to offset the price declines:

As has been the case for the entire time I have reported on BREE’s forecasts, these kinds volume increases are going to smash the price far lower than the forecasts.