Two analysts who called the recent plunge in iron ore prices believe the recent uptick in prices will be short-lived, with a “double dip” hitting the market into 2012. The view contrasts with Macquarie Bank analysts, who are sticking for now with their forecast that prices will rally.
Dragon Capital analyst Alexander Makarov expects prices of 63.5%-Fe ore to fall to $100/dmt CIF China in the next two to four months as he sees “weakening Chinese demand for steel and signs of the oligopoly on the world iron ore market breaking.”
The Platts assessment for 63.5%/63%-Fe fines rallied to $144.50/dmt CFR China on Friday from a low so far in 2011 of $124.75/dmt on October 28.
“It comes as no surprise that the recent collapse in prices prompted buying activity and pushed prices higher in the past three weeks, but we expect this to be a short-lived trend,” Makarov said in a report published Thursday.
“Iron ore prices are currently moving up on resuming purchases from Chinese steel plants and we project an upward trend with plateau at about $140/dmt during the next two months.”
The global steel sector has weakened, but Chinese iron ore output may stay steady even at prices below current levels, Makarov said.
“We can estimate that current marginal cash costs on CIF China basis are below $110/mt for at least 95% of global seaborne supply. We think the market is poised to decline to this level (which in dry metric ton terms is equivalent to $100/dmt), and expect this to happen in the next two to four months.”
Makarov in August advised clients of the Ukraine-based investment bank — in which Goldman Sachs has a minority stake — to sell steel company shares on expectations of a “$100-150/mt” slide in steel prices over two to three months and a 30% correction in iron ore prices in two to six months.
Sourcre: Platts
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