UBS: Iron ore will recover just because


From our favourite eponymous iron ore analyst today, UBS’s Tom Price, pictured above on a recent tour of the Pilbara:

“Our view is this fall in the price is temporary…You will actually start seeing the price tighten, inventories draw down, steel production lift, they always do every year. So over the next six months our expectation is for the prices of iron ore to recover and get back to a level of about $US130. We think that’s a reasonable one for the first half of this year…The surge in supply – we highlighted that as a risk to iron ore prices back in Q3 but it seems to have had a knock on effect coming in to 2014 – has changed the mood among steel mills in China…They are not as anxious about securing ore in the short term because they know there is more material coming.”

A return to $130 is very possible if mills aggressively restock but if they are comfortable with short term ore supply, and subdued demand, why would they bother?

(BTW Dalian futures are finally off the canvas today up 1.1%)

10 Responses to “ “UBS: Iron ore will recover just because”

    • Not without stimulus, old boy, which, admittedly may be happening in interbank markets already…

    • 3d1k says:

      Tom has seen the light post his $75 call. Resistance is futile ;)

      $130 would be very tidy. Slightly on the upside?

    • Researchtime says:

      Toms right – there is always a seasonal recovery this time of the year as construction picks up after winter (good to see he made that observation in the Pilbara!). I have been told (by someone who knows substantially more than me) that global steel production should grow 2-3% this year. I assume that will all be Chinese growth – despite the ~300Mt surplus productive capacity they already have. Ultimately, its demand not supply that dictates prices. Hence, a recovery in price does not mean that we are out of the woods.

      Debt levels in China are too toppy; its no longer a growth model (aka 7.5% pa) anymore, its a debt model (>US$3tn pa) which buys a lot of stuff. I know everyone is saying that the Chinese are in the process of rebalancing their economy – and there is a lot of economic benefit cleaning air, but I keep asking myself – how? What are they are going to do next? And where is all the money going to come from, given they have spent a significant portion of their future earnings (assuming they make some) already?

      Clearly there are people a lot smarter than I am – but It all just doesn’t make any sense to me????

  1. darrenj says:

    Who can really believe Chinese figures, I don’t think we have even seen a true growth, debt or figure for the last 6 years.
    At these price every chinese I/o miner is underwater and they supply 30% of there needs.
    Bhp and rio would be quite happy to see them close for short term pain for long term gain.
    My only bright side would be iron or to drop below Roy hills cost and Gina stop pontificating how the average Australian should work for less as she will be one of them.

    • athalone says:

      Hi darrenj.

      Who can believe the figures coming from any country ?

      It’s all bullshit… that’s why we’ve been in a Depression since 2008.

      The problem is debt and that has increased by 40% since the depression began.

      Then there is the unfunded liabilities…it’s a disaster.

  2. darrenj says:

    The biggest thing is nothing can ever show a true value. From oil to all metals are all pushed in a direction not by consumption but by when someone with 10 mil one can use derivatives to move a anything from gold to oil by 1000 times there initial outlay. So go figure no wonder everything is unfunded and the gfc won’t go away.