Find below the iron ore price table for March 1, 2013:
The big news over the weekend was the Chinese move to suppress property prices. The measures are very much targeted at reducing speculation in exiting dwellings. Some have argued that this will shift investor demand to new homes. So, for the purposes of iron ore, could it actually stimulate more building?
Possibly but I wouldn’t bet on it. Australia is a shining example of why broader property and land prices are much more important to simulating building than are direct subsidies to new homes. The ore market will rightly take this badly.
Even before this news, the hatred of the iron ore rally reached new highs Friday with Goldman Sachs joining the bears:
A significant rise in iron ore capacity coupled with moderate steel output growth will see a shift in pricing power for the raw material from the hands of mining companies to Chinese steelmakers in 2013, analysts at Goldman Sachs said Thursday.
“In 2013, we forecast China’s steel production to rise 5% to 745 million mt and global iron ore supply to grow 9.5%, sending the global iron ore market into a meaningful surplus for the first time since 2003,” analysts led by Julian Zhu said in a note.
…About 40%, or 180 million mt/year, of China’s 440 million mt/year of new iron ore run-of-mine capacity under construction is forecast to come onstream over 2013-2015, making the country’s targeted 40% self-sufficiency rate by 2015 “highly likely,” the analysts said.
The self-sufficiency figure will reach 33% this year, compared with 30% in 2012, with Liaoning and Hebei — the top two iron ore-producing provinces — accounting for 53% of total new capacity, they added.
“Although we agree that China should remain a high cost supplier of iron ore compared to global major suppliers, we believe the effective industry average cost should be around $90-110/mt instead of the consensus estimate of $140/mt,” they said.
Iron ore prices this year would likely peak in the second quarter, before tailing off once new capacity starts coming onstream in the second half of the year, the analysts said.
Tailing off? As in a stroll down a gentlemanly slope? Since when did markets behave like that? Goldman is still forecasting iron ore prices to average $144/mt in 2013 before falling to $126/mt in 2014. I’ll go out on a limb here and say that the high is in for ore this year already. And although it may stay in the current range in the first half, at some point the price will crash. There’ll be no tapering.
China is moving to squash real estate speculation, the inventory cycle for both steel and ore restocking are largely complete, so where’s the upside? As well, my view is that Goldman is being generous on steel growth and very conservative on ore capacity growth.
$90-110 looks a better range for 2014. If India rebounds as well, knock off another $10.
