Iron ore industry, apart from Big 3, faces existential challenge: Goldman
[MELBOURNE] The entire global iron ore industry apart from the three biggest producers faces an existential challenge as seaborne demand will peak next year, according to Goldman Sachs Group, which cut price forecasts through 2018.
Iron ore will average US$52 a metric ton this year, 18 per cent less than previously forecast, analysts Christian Lelong and Amber Cai wrote in a note on Thursday. The bank cut its outlook for next year 29 per cent to US$44 and lowered estimates for 2017 and 2018 by 33 per cent to US$40, according to the report.
Iron ore slumped below US$50 a ton this month as surging low- cost output from BHP Billiton, Rio Tinto Group and Vale fed a surplus and demand in China faltered. The world's three biggest producers will press on with their expansions, while as much as half of the rest of the industry may close, Lelong and Cai wrote. Goldman joins JPMorgan Chase, UBS Group and Citigroup in cutting estimates this month.
"Tier 1 producers have no alternative but to reduce unit costs and to exploit their asset base more efficiently; their production volumes are not at risk from a lower iron ore price," Goldman said, referring to BHP, Rio and Vale. "The rest of the industry is now facing an existential challenge."
Ore with 62 per cent content at Qingdao declined 0.9 per cent to US$50.33 a dry ton on Wednesday, according to Metal Bulletin. It fell to US$47.08 on April 2, the lowest since 2005, based on daily and weekly data from Metal Bulletin and annual benchmarks for ore delivered to China from Clarkson. It's 29 per cent lower in 2015 after losing 47 per cent last year.
"We expect seaborne iron ore demand to peak in 2016," Mr Lelong and Ms Cai wrote in the report, which was titled 'Survival of the Fittest'. "Chinese steel consumption has already overshot and it will contract until it reaches a sustainable rate."
BLOOMBERG
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Energy & Commodities
Gold prices set for weekly decline ahead of US inflation data
Pricey coffee is here to stay as hoarding, heat hit Vietnam supply
Oil settles higher as weak US economic growth offset by supply concerns
India's Vedanta misses Q4 profit estimates on lower prices
BHP targets Anglo American in bid valuing miner at US$39 billion
China's Sinopec charts global expansion with refinery in rival India's backyard