According to a quarterly government report on Resources and Energy released by Australia’s Department of Industry in Jul’18, slipping demand from China’s steel mills and increase domestic and Brazilian production can make iron ore prices fall by more than 20% over the next two years.
The report further highlighted that iron ore prices will fall to an average of $51/metric ton in 2020, more than 21% below the current prices. The report also stated that the near iron ore prices should find some support as steel prices themselves head higher, with a positive outlook for industrial production and a seasonal rebound in construction activity in China’s spring will shore up prices to average $59/ton FOB Australia this year.
Australia's iron ore export volumes grew 3.4% to 199 million mt in Mar’18 quarter. This growth was led by productivity improvements at RioTinto's Pilbara operations and the ramp up of its recently commissioned Silvergrass iron ore mine, as well as improved rail performance at BHP's operations. The report has further highlighted that while productivity improvements and replacement mines at Rio Tinto and BHP's operations as they attempt to reach their long-term production targets as well as the commissioning and ramp up of some smaller projects, including Mount Gibson's Koolan Island are expected to drive volume increases, some of that will be partly offset by the closure of some mines due to depletion.
The report also noted BHP's production guidance downgrade of 4.5 million mt to 237 million mt, which it announced in its January-March quarterly report, because of train reliability issues. It forecasts Brazil's iron ore exports to climb from 384 million mt in 2017, to 437 million mt in 2020. Meanwhile, China's imports of the steel making ingredient are expected to fall from 1,075 million mt in 2017, to 1,068 million mt in 2020, after hitting1,093 million mt for 2018.
However, during the first week of Aug’18, the Commonwealth Bank of Australia has raised its fiscal 2018-2019 iron ore price forecast for 62% Fe iron ore fines, on views that demand for mid-grade iron ore will increase as high-grade premium proves too costly, CBA analysts are now expecting the 62% Fe iron ore fines price to average at $61/mt CFR China in the 12 months to June 30, 2019, which is up 9% from its previous expectation of $56/mt, it said in its Commodities strategy report. Despite the near-term upgrade to prices, CBA still sees a decrease in value of Iron Ore in the longer term. Commodity Research Analyst Dane Davis, at Barclays also believes iron ore is set to tumble and there’s a lot more downside to come.
Some of the top trading Iron Ore stocks on ASX includes – BHP Billiton, Rio Tinto, Fortescue Metals, Atlas Iron & Iron Road Ltd. Although these are all reports that forecast the future basis global trends and only time will confirm the future of Iron Ore, but as an investor, it’s always wise to have an exit strategy in place before it is too late. So, we advise our valuable clients to hold on to these stocks in the shorter run and keep a close eye on them so that you can start booking your profits when the downward trend kicks in.
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