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Iron ore prices may fall to $55/dmt in Q2 as stocks rise, Barclays

Iron ore prices may have peaked in the first quarter as declines take hold for the remainder of the year, investment bank Barclays said.

Barclays said its iron ore price forecast for 2018 was adjusted up to $62/dry mt CFR China due to stronger pricing than expected so far this year, in an abridged report emailed late Thursday. Barclays sees iron ore declining to average $55/dmt in Q2 2018.

Iron ore imported to China averaged in February at $77.46/dmt, the highest monthly average since March 2017 for reference 62% Fe grade assessed by S&P Global Platts.

If Q1 is the iron ore market’s zenith, then Q2 2018 will mark the bottom, said Barclay’s analyst Dane Davis in New York.

“We think that Q2, 2018 should be the nadir for the iron ore market,” he said in the email.

“While we slightly raise our price expectation for 2018 to an average of $62/dmt, this represents a marking-to-market for Q1, 18 and not a change to our fundamental thesis of decreasing prices in 2018,” he added.

Barclays said blast furnace utilization rates in China have fallen to 63%, boosting steel prices and lifting mill profitability, while demand for iron ore has fallen.

“Port stock inventories of iron ore have continued to climb and currently stand at 160 million mt. This is the highest level on record, and represents a 13 million mt gain in 2018 alone,” Barclays said.

“Although the material sitting in port inventories is not currently favored by the market, if and when the switch to lower-quality ores occurs, the abundance will result in a compression of the benchmark price and a narrowing of the spread between high- and low-quality ores,” it added.

Pricing relativities for lower grade ores over 62% Fe indices and higher grade materials have suffered. Oversupply and a shift to purer ores to boost productivity in Chinese mills hit the lower grade iron ore segment harder.

Platts 58% Fe assessment fell to $37.50/dmt on Thursday, almost half the price of benchmark fines, with $72/dmt assessed for IODEX 62% Fe.

Source: Platts

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