Customized Research and Market Forecasts

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

Source

Forecast indicator

Revision date

2012

Q1

Q2

Q3

Q4

2013

2014

2015

Long-term forecast

2013

HSBC

Iron ore Fines (Australia)

Jan ‘13

124

n/a

n/a

n/a

n/a

123

105

105

88

Goldman Sachs

Iron ore 62% Fe, CFR China

Mar ‘13

130

n/a

n/a

n/a

n/a

139

126

90

80

J.P. Morgan

Iron Ore Spot (62% CIF China)

Jan ‘13

131

145

130

125

120

130

115

105

80

Standard Bank

Iron ore - Indian fines spot to China

Jan ‘13

127

125

140

133

140

135

125

115

n/a

ABN AMRO

China Iron Ore Fines

Jan ‘13

138

139

n/a

n/a

n/a

136

119

115

n/a

Deutsche Bank

China imported fines (62% CFR)

Jan ‘13

124

n/a

n/a

n/a

n/a

125

115

110

80

ABARE

Iron ore fines from Australia

Mar ‘13

129

n/a

n/a

n/a

n/a

119

114

105

96

Morgan Stanley

Iron ore, FOB Australia

Jan ‘13

139

142

n/a

125

n/a

133

n/a

n/a

110

World Bank

Iron ore fines (62%), spot, CFR China

Jan ‘13

128

n/a

n/a

n/a

n/a

130

132

135

150

Westpac

Australian export price FOB

Jan ‘13

120

135

175

175

110

149

150

n/a

n/a

Renaissance Capital

China CFR, 62%, dry, fines

Apr ‘13

128

148

125

115

110

125

100

90

90

Citigroup Inc.

Iron ore Fines, Australia

Jan ‘13

125

135

120

110

115

120

122

122

n/a

KPMG

62% Iron ore fines – China CFR Tianjin port

Nov ‘12

133

n/a

n/a

n/a

n/a

130

120

110

90

Macquarie Bank

Spot 62% Fe iron ore China

Jan ‘13

130

140

140

130

130

130

125

115

80

Credit Suisse

Iron ore fines – 62% (China CFR), dry

Jan ‘13

128

130

125

115

110

120

100

90

90

CBA

Iron ore spot (62% cfr China)

Jan ‘13

129

n/a

n/a

n/a

n/a

119

116

115

86

Merill Lynch

Iron ore (Fe 63.5%, fines)

Jan ‘13

125

145

124

114

114

124

111

n/a

n/a

ANZ

Iron ore Spot (CIF China, fines)

Mar ‘13

125

145

135

132

132

136

129

125

n/a

UBS

Iron ore 62% Fe

Jan ‘13

n/a

130

135

111

111

122

n/a

n/a

n/a

Morningstar

Iron ore 62% Fe

Jan ‘13

n/a

n/a

n/a

n/a

n/a

130

n/a

90

n/a

Masquarie

Iron ore 62% Fe

Jan ‘13

n/a

n/a

n/a

n/a

n/a

140

n/a

n/a

n/a

BMO

Fe 62%

Mar ‘13

128

148

130

115

120

128

125

120

n/a

Consensus forecast *

Iron ore fines (62% Fe, CFR China)

129

144

137

129

121

132

120

109

93

Forecast (max)*

Iron ore fines (62% Fe, CFR China)

129

144

183

183

132

157

158

135

150

Forecast (min)*

Iron ore fines (62% Fe, CFR China)

129

144

120

110

114

119

100

90

80

* March-April forecasts and January forecasts of investment banks that demonstrated high accuracy in Q1 were taken into account while forming consensus forecast, minimum and maximum limits in short and medium term

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

Q1 ‘13

Q2 ‘13

Q3 ‘13

Q4 ‘13

Fact

147

-

-

-

Consensus forecast (investment banks) – Jan ‘13

133

136

130

122

Metal Expert Consulting – Jan ‘13

146

154

143

143

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.

Source: Metal Expert Consulting

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