Conflicting Views on Iron Ore – Two Sides of the Fence
Conflicting views in the Iron ore sector this morning with Citigroup calling for iron ore prices to fade to USD 70/ton as we approach May and seasonal weakness in China steel demand.
The bank noted that the decline is taking longer than anticipated due to lower volumes from Brazil but still anticipate a surplus of 80 million tons in the second half of 2020.
Citigroup’s analyst Tracy Liao see’s steel demand outside of Asia down 30% in in Q2 and 25% in Q3, with a positive 4% in Q4. The full year forecast remains at USD 79.00
Meanwhile flying the bull flag is Fortescue metals chief executive Elizabeth Gaines, citing China’s commitment to Urbanisation and development.
Ms Gaines noted that steel inventories that were built up in the front quarter were being drawn down as weather improved in China and should underpin iron ore demand. Gaines noted that steel making continued to show strength and could improve further if Beijing opted for another round of stimulus.
Steel makers were forecasting growth of between 2 per cent
and 4 per cent when she visited China early in 2020.
Ms Gaines told the Macquarie Australia Conference it was
difficult to predict where the growth rate might end up given
the prospect of additional stimulus.
“However, as we are all well aware the global economic
outlook does remain uncertain given the impact of the virus on
the major economies of the world, including the US, UK and
Europe.”
Stockpiles are down from the 160 million tonne peak from March 2018 and now sit around the 116 million tonnes mark on the back of last years supply disruptions.
Like Citigroup Gaines did acknowledge that the picture was not as rosy outside of China where there there has been significant impact from the pandemic.
The opposing views will hardly be a surprise to market participants in Iron ore, not because of exposure, but because of price. In the week of August 16th 2019 the 55 period Weekly moving average was CNY 635.8, roll on 8 months and that same average is 634.1 showing the lack of directional bias in the market at this point.
two vies on either side of the fence, or a market that is just fenced in?