Iron ore prices are expected to rule at $50-70/ton for the next 6 months: BMI Research

PTI

Aided by growth in demand from China, the world's largest steel maker, iron ore prices are expected to rule in the range of $50-70 per tonne in the near term, BMI Research said today. "We expect iron ore prices will trade between $50-70 a tonne over H1 2017 as additional Chinese stimulus measures will tighten the market, providing support to prices over the next six-to-nine months," BMI Research, part of the Fitch Group, said in a statement.

However by 2018, the prices will re-test lows due to an over-supply in the seaborne iron ore market, driven by strong production in Australia and Brazil and weakening consumption growth in China, it added. "Whereas our previous core scenario expected the iron ore balance to loosen in H2 2016, providing downwards pressure on prices going into 2017, additional Chinese infrastructure stimulus measures will tighten the market, providing support to prices over the next six-to-nine months," it explained.

Iron ore prices will be supported by sustained demand from steel mills restocking iron ore as resilient Chinese steel prices will continue to incentivise domestic steel production.

In the long term, BMI Research said: "We have revised up iron ore forecast out to 2020, and expect iron ore prices to average $55 per tonne in 2017 and $48 a tonne in 2018, up from our previous forecast of $45 per tonne in both 2017 and 2018."

The upward revision is predicated on the agency's core view turning more bullish towards metal prices. "We now see it likely that infrastructure stimulus measures by China will stay strong through to the end of 2017, rather than our previous core view for stimulus measures to fade in H2 2016," it added.

By 2017-end, prices will head lower as stimulus-driven ore price rally's upside effects to ore consumption will fade, loosening the market, putting downwards pressure on prices.

The global iron ore market will continue to see strong supply from low-cost producing countries Australia and Brazil, the world's second and third largest producers, respectively, which will only partially offset the slowdown in Chinese iron ore production, it said.

"From 2018 onwards, continued high-cost Chinese iron ore production cuts and slowing growth from major producers will reduce the global oversupply, and thus prevent a further weakening of iron ore prices," BMI Research said.

This will sustain the existing trend of Chinese iron ore demand being increasingly met by seaborne iron ore imports, it added. Over the first 9 months of 2016, Chinese iron ore imports grew strongly, averaging 9.3% y-o-y, in marked contrast to the muted 0.5% growth in national steel production (iron ore demand) over that same period.