We forecast $45/t in 4Q15 and the 2016 calendar year. We consider $45/t is an appropriate trough price on several lines of evidence:
■ The price fall to $47/t in 1Q15 closed a lot of marginal supply—statistics show the effect on supply was stronger than it appeared at the time.
■ We consider Atlas Iron to be marginal supply. It has restarted with a new break-even iron ore price of $50/t. A trough price will need to be sustained below this level.
■ We presented break-even costs for the major seaborne suppliers in Commodities View: How can all the new iron ore be accommodated? – 12 May 2015. We found that all the major seaborne suppliers that we considered would survive and had breakeven iron ore prices a little below $45/t.
Not low enough for mine! Mill inventories still low but with domestic production ramping up the choke hold that traders have on supply is going to loosen and then collapse.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
