Grrrrr...
Goldman joins banks cutting iron ore price forecasts on global glut
Bloomberg reported that First Citigroup Inc, then UBS Group AG, now Goldman Sachs Group Inc, for iron ore, which plummeted 47% in 2014, the cuts to price forecasts from global banks just keep coming in the opening weeks of the year.
Goldman Sachs said in a report that the steel-making ingredient may average USD 66 a tonne this year from an earlier estimate of USD 80. This is the first time the New York-based bank has reduced its 2015 prediction since March 2013, and it's at least the fifth bank this month to lower estimates, citing rising seaborne supplies and weaker demand growth from China, the biggest user.
Goldman analysts including Mr Christian Lelong said in the report that “Significant overinvestment to date will ensure that the market is well supplied, while demand from the Chinese steel sector is maturing. A painful war of attrition awaits the iron ore industry as less competitive mines shut.”
Goldman said that low-cost expansions will probably continue as major producers are still mining iron ore at a profit. This will expand the global seaborne surplus from 47 million tonne this year to 260 million tonne by 2018.
Exporters from Australia are winning the battle for market share in China, accounting for 59% of imports last year from 51% in 2013. Brazil share was 18% from 19%, while exports from the rest of the world fell to 23% from 30%.
Goldman said that “The decade-long love affair between China and iron ore is cooling. We consider China to be a mature market and import growth is bound to moderate in line with domestic steel consumption.”
According to the bank, balancing the market in the face of stronger supply growth and slowing demand will result in more closures among high-cost producers, which will last beyond 2016. That burden will fall mainly on less competitive seaborne miners as output cuts in China won't be sufficient.
Goldman predicts that about 29 million tonne of seaborne capacity this year and 101 million tonne in 2016 will shutter. The marginal cost of seaborne production is set to drop 17% to USD 65 by next year. Mines with operating costs above this level would be forced to close.
Source - Bloomberg