Customized Research and Market Forecasts

Global iron ore price forecast (December 2013)


Metal Expert Consulting continues to publish open quarterly reports to show its own understanding of the iron ore market development until 2015 and in a long term and compare it with the consensus forecast of investment companies and analysts.

In October through December the global iron ore quotes were quite stable within the average monthly range of $133-137/t. By the end of December spot prices for iron ore moved back to October level of $133/t.

This was quite unexpected as many industry analysts had forecasted prices to drop to $120-125/t in Q4. However, China’s strong consumption and stable demand for the imported material supported some increase as compared with the previous quarter.

According to our estimates, China’s support of global prices for iron ore is getting weaker. This trend is expected to continue in 2014. The decrease in country’s GDP growth results in a slowdown of steel consumption and production. According to worldsteel.org and mysteel.net, the pig iron production in China dropped by 6 mt in November, to 53 mt, this low last seen in 2012. In 2014 we expect China’s steel consumption growth to slow down from earlier expected 6% to 2%. Since the country is focusing on domestic market and cutting exports, this will restrain the growth of both steel and pig iron production.

Yet another factor to depress the iron ore prices is port stocks rising from 72 to 84 mt over the three past months. However, the influence of this factor may weaken in Q1 2014, when steel mills will start to resume iron ore purchases after holidays.

Below is the Metal Expert Consulting’s medium- and long-term consensus forecast of iron ore price changes based on 34 reports sourced from industry and investment analysts. To build the consensus forecast, we have adjusted all available prices to a common benchmark basis – the CFR China price for Australian 62% Fe fines. The investment banks’ most recent forecasts for November-December have been considered. As an exception, we have also considered some forecasts produced by investment banks for earlier periods (August-October) in case they had proved to be quite accurate for Q3-Q4.

Experts’ forecasts from the reports and research works carried out by the following companies have been taken into account (in alphabetic order): ABARE, ABN AMRO, ANZ, BMO, BREE, CIMB Group, Citigroup Inc., Commonwealth Bank, Credit Suisse, Deloitte Access Economics, Deutsche Bank, ETLA, Goldman Sachs, HSBC, IHS Global Insight, IMF, Investec, J.P. Morgan, KPMG, Liberium Capital, Macquarie Bank, Merill Lynch, Morgan Stanley, National Australia Bank, Numis, RBC Capital Markets, Renaissance Capital, Scotiabank, Standard Bank, UBS, VTB Capital, Westpac, Wilson HTM, World Bank.

Meanwhile, just 23 of the above companies provide long-term forecasts for iron ore prices, therefore the sources for the maximum and minimum forecasts for medium- and long-term outlook are different.

Several investment banks (UBS, Credit Suiss, Goldman Sachs) believe that iron ore prices are much likely to drop substantially by the end of 2014. Meanwhile, VTB Capital, World Bank Credit Suisse и Liberium Capital give the most optimistic forecast.

Global iron ore consensus forecast by industry and financial companies, $/t

Q4’ 13

Q1’ 14

Q2’ 14

Q3’ 14

Q4’ 14

2013

2014

2015

Long-term

Consensus forecast

135

124

121

117

115

135

120

112

101

Maximum forecast

133

138

138

138

145

150

159

Minimum forecast прогноз

111

106

96

86

100

86

80

Note: To get the forecasts, all available prices have been adjusted to a common benchmark basis – the CFR China price for Australian 62% Fe fines

The use of our own forecasting methods again showed good results in Q4. While the actual iron ore price was $135/t in China in Q4, our forecast published in early October was $139/t (inaccuracy just 3%, while trend forecast was correct). At the same time, a consensus forecast of investment companies is 11% ($15/t) inaccurate. Meanwhile, while the dependent industry analysts’ forecast was prepared, only the then latest, August-September reports of investment banks were used.

Comparison of iron ore price forecast accuracy of MEC and industry analysts

Q1 ’13

Q2 ’13

Q3 ‘13

Q4 ’13

Q1 ‘14

Fact

147

125

132

135

-

Consensus forecast (investment banks) – Jan ‘13

133

136

130

122

-

Metal Expert Consulting – Jan ‘13

146

154

143

143

-

Consensus forecast (investment banks) – Apr ‘13

147

137

129

121

-

Metal Expert Consulting – Apr ‘13 (basic scenario)

-

149

148

143

-

Metal Expert Consulting – Apr ‘13 (alternative scenario)

-

128

130

135

-

Consensus forecast (investment banks) – Jul ‘13

-

125

120

117

118

Metal Expert Consulting – Jul ‘13 (basic scenario)

-

-

130

132

130

Metal Expert Consulting – Jul ‘13 (alternative scenario)

-

-

115

110

115

Consensus forecast (investment banks) – Oct ‘13

-

-

132

120

120

Metal Expert Consulting – Oct ‘13

-

-

-

139

132

According to our estimates, global iron ore price trends of 2005-2006 will most likely be repeated: in H1 2014 the material price will decrease to $127/t to recover to $130-132/t in Q3-4. The medium- and long-term forecasts have remained unchanged.

Same as in the previous reports, Metal Expert Consulting’s understanding of iron ore price outlooks is more optimistic than a consensus forecast of investment companies.

The graph below shows comparison of Metal Expert Consulting’s current price forecast for Australian iron ore fines (62% Fe) in the Chinese market with the level of prices that investment and industry analysts expect (adjusted to the same basis).

Source: Metal Expert Consulting

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