Azernews.Az

By Bloomberg

Iron ore is headed back below $50 a metric ton as supplies from Australia and Brazil expand and a slump in steel prices squeezes mills’ profits, according to Goldman Sachs Group Inc., repeating a forecast that recent gains won’t last.

Freight data from terminals in the two biggest shippers showed volumes rose 10 percent in the first half of June compared with the average over the first five months, the bank said in a report dated June 21. The rise will be sustained, allowing inventories in China to recover and sending prices lower again, Goldman said, predicting ore will average $49 a ton in the third quarter and $48 in the final three months.

Iron ore’s been on a roller-coaster ride in 2015, sinking to a decade-low in early April as surging low-cost output from miners including Rio Tinto Group and weaker demand in China boosted a glut. Tumbling stockpiles in the biggest user, after imports missed expectations, helped to spur gains in April, May and the first two weeks of June. Goldman and Citigroup Inc. are among banks saying that the higher ore prices won’t last.

“Rising supply from Brazil and Australia, which in aggregate account for 80 percent of seaborne exports, together with subdued demand from Chinese steel mills will once again shift the balance of power from producers to consumers,” analysts Christian Lelong and Amber Cai wrote.

Ore with 62 percent content delivered to Qingdao lost 5.8 percent to $61.36 a dry ton last week, the first drop in four weeks, according to data from Metal Bulletin Ltd. Prices that jumped 39 percent after bottoming at $47.08 on April 2 and peaking at $65.61 on June 11, are 14 percent lower this year.

Weaker Demand

The cost of transporting ore to China rose about 10 percent to 20 percent since the start of June, signaling increased shipments, Goldman said. Mills’ profits dropped to a five-year low in May as steel and iron ore prices diverged, and negative margins at some steelmakers will lead to lower output and weaker demand for iron ore, the analysts wrote.

Holdings of iron ore at Chinese ports fell 2.1 percent to 80.3 million tons last week, the lowest level since November 2013, according to Shanghai Steelhome Information Technology Co. The inventories shrank 13 percent last month, the biggest monthly drop on record in data going back to 2010.

The forecast increase in supplies will help to shore up the inventories that were depleted by weaker-than-expected exports in April and May and, once they are back to normal, low prices will once again be required to balance the market, Goldman said.

Increased iron ore supplies from the top producers and further cuts to steel output will cause prices to slump, according to Citigroup. The bank sees prices at $48 in the third quarter and $38 in the fourth as Rio completes an expansion and the Roy Hill mine backed by billionaire Gina Rinehart in Australia begins shipments, according to a report last week.

China may produce about 807 million tons of steel this year, from 823 million in 2014, the China Iron & Steel Association said last week. Steel reinforcement bar plunged 18 percent this year to 2,265 yuan a ton on Friday, the lowest since at least 2003, according Beijing Antaike Information Development Co.