Global iron ore price forecast (April 2013)
Metal Expert Consulting continues to publish open quarterly reports to show its own understanding of the iron ore market development until 2015 and compare it with the consensus forecast of investment companies and analysts.
The global iron ore prices stabilization in the first two weeks of February ($150-155/t CFR China – 62% Fe Australian fines) was followed by a negative trend in the second half of Q1: spot prices rolled down to $133-135/t level, which persists in early April.
According to the major market players and industry experts, the price decline was caused by weaker demand (Chinese consumers cut their purchases drastically after re-stocking) and better availability of the material (there were seasonal difficulties with iron ore shipments from Australia at the beginning of the year).
In early Q2, the situation in the Chinese steel product market is getting worse. The following three facts demonstrate the surplus striking the market:
a) steel production in China gained 11% y-o-y in January-February 2013, reaching 50% of the total global production for the first time ever;
b) apparent consumption of steel products in the country increased by 10% y-o-y in the same period;
c) China’s PMI published in early April showed a drop of 14 points, reflecting Chinese consumers’ negative expectations from Q2 in general.
As a result, the leading investment banks and industry analysts started to update their short- and medium-term forecasts for iron ore as well as other raw materials, revising the change direction again.
Several forecasts of iron ore price change prepared after the beginning of 2013 are provided below. Many analysts will update their forecasts by late April; we did not consider their January forecasts while developing the consensus forecast.
Global iron ore price forecasts by industry and financial companies, $/t
Application of Metal Expert Consulting forecast methodologies showed a great result in Q1. In particular, our forecast published in early 2013 differs from the actual $147/t by a mere $1/t, whereas investment companies showed a 10% divergence from the fact. For reference, the consensus forecast of independent industry analysts published at the beginning of the year took into account only the latest January reports of investment banks.
Comparison of iron ore price forecast accuracy of MEC and industry analysts
Due to high volatility of actual iron ore prices in January-March, Metal Expert Consulting forecast until the end of 2013 based on non-linear dynamics methods has been updated. The iron ore market in the short term earlier resembled the 2010 dynamics in terms of the model (which proved correct: average quarterly prices – fact and forecast – are almost identical); it now resembles the 2004-2005 period.
In particular, we expect that global iron ore prices will start gradual recovery by the end of April and reach $148-149/t in Q2-Q3. In October-December, the iron ore market will face a surplus and prices will fall to $143/t CFR China. The medium- and long-term iron ore price forecast remains unchanged.
Nevertheless, the probability of decline in prices for iron ore (as well as other raw materials and finished products) gets higher under the method of non-linear dynamics: the second scenario is the one where iron ore prices will drop to $128-130/t in Q2-Q3 with further recovery to $135/t in Q4. Although this forecast approaches investment banks’ consensus forecast the most closely, it is not considered basic in the model.
The diagram below presents comparison of Metal Expert Consulting forecast of prices for Australian iron ore fines (62% Fe) in China and price expectations of investment and industry analysts adjusted to this basis.
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