Australian and New Zealand Banking Group (ASX:ANZ) has recently cut its iron ore forecast through 2017. According to the bank, a chronic downturn in steel consumption in China will inhibit the cost projections for iron ore prices. The company now believes the commodity will average US$55 per tonne next year, down from the previous forecast of US$60 per tonne. In 2017, the new projected price point comes in at US$60 per tonne, down from the previous US$63 projection. Prices over the next 12 months will remain between US$50 and US$60 per tonne, according to the bank’s report. Prices for the commodity have rebounded over the past month after reaching a floor price of around US$47 per tonne. Part of the causes for the 10-year low price point for iron ore was attributed to BHP and Rio Tinto increasing production despite falling prices.
The two largest iron ore producers in the world, Vale and BHP, both recently announced plans to partially cut back production. Despite this, many analysts are questioning if the price of the commodity can return to previous levels. Earlier in the week, analysts at Goldman Sachs noted that the plummeting steel consumption in China might be a signal that peak iron ore demand is near. Mark Pervan, Head of Commodity Research at ANZ, noted that the reduced production by major miners might not be enough for prices to recover. “A floor price was reached at $US47 a tonne in early April, when iron ore majors BHP Billiton and Vale announced intentions to reduce supply," he said. "Despite this, we feel fundamentals still look weak. Steel prices have only shown a mildly positive response, and low-cost iron ore supply continues to expand.
Author: Imran Valibhoy
May 08, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.