Goldman Sachs Group Inc. has warned that the global iron ore market faces a rising surplus as miners are poised to churn out more supply while China’s production of steel slows, predicting that prices will probably sink below $40 a metric ton as stockpiles expand.
“We expect a growing surplus of seaborne supply to drive an increase in port inventories,” analysts Christian Lelong and Amber Cai wrote in a note received on Friday. “Stocks are set to increase as new mining capacity ramps up in the second half of 2016 and Chinese demand declines”, Bloomberg reported.
Benchmark prices sank back below $50 on Thursday to the lowest level since February on concern that profit margins at China’s steel mills are again collapsing, hurting the outlook for iron ore demand just as miners continue to add supply. Between February and April, iron ore had benefited as an upswing in credit in China lifted steel prices, spurring a revival of production at mills. A speculative frenzy by local investors added to the gains, prompting a clampdown from regulators and exchanges.
Goldman said it saw iron ore at $55 a ton this quarter and $45 a ton between July and September, repeating forecasts that the New York-based bank gave in a report earlier this month. For the final three months, Goldman said iron ore is now seen at $38 a ton, $2 less than the figure given in the earlier report.
Ore with 62% content sank 1.8% to $49.48 a ton on Thursday, the lowest since Feb. 26, according to Metal Bulletin Ltd. The raw material has lost 30% since peaking at more than $70 on April 21, when the speculative frenzy in China helped to lift prices for three straight months. On Friday, iron ore futures in Dalian and Singapore climbed, paring weekly losses.
