Goldman today remains bearish iron ore very much along the lines of my own thoughts:
Prices respond sharply to the early stages of oversupply
Based on our estimates, the seaborne iron ore market only moved into surplus during the current quarter but the early stages of structural oversupply have already sent spot prices down 32% ytd to US$92/t. Falling import prices have gradually put domestic production under pressure, with concentrate prices falling to Rmb895/t (down 16% ytd) and forcing the closure of high cost mines. In our view, it is still too early to test the level of price support that the Chinese cost curve will provide over 2014-15; the displacement of marginal production has barely begun.Potential for destocking remains a short term risk
In the short term, we believe that record port inventory of 111Mt creates the potential for a destocking cycle. Back in 2012, the decline in prices preceded the decline in inventory by c.2 months and it took c.6 months for prices to recover back to their previous level. On that basis, the recent price decline could signal another destocking cycle with c.30Mt of excess port inventory at play, but the subsequent price recovery this time round would be more subdued because of the shift to a structural oversupply. Our price forecasts for 2H 2014 and 2015 remain unchanged at US$103/t and US$80/t respectively.
Nothing to add except that it’s right.
