Rising seaborne iron ore supplies over the next two quarters will probably overwhelm weak demand from mills in China, according to Goldman Sachs Group Inc., which said that a global glut was entering its second year.
While housing starts in China have recovered and infrastructure has overtaken property to become the largest market for steel, an improvement this half may not be strong enough to support iron ore, the bank said in a report. Prices are seen dropping over the next four quarters, from $49 a metric ton through September to $44 by the April-to-June period of 2016, according to analysts Christian Lelong and Amber Cai.
Iron ore sank to the lowest since 2009 this month amid concern that the biggest mining companies including Rio Tinto Group, BHP Billiton Ltd. and Vale SA are intent on boosting low-cost supply even as demand falters.
Imports by China fell in the first six months of the year, while local mills sold a record amount of output overseas. BHP, which is set to report quarterly production data tomorrow, said on Tuesday it’s spending $240 million to upgrade tug-boat operations at Port Hedland.
“We expect seaborne supply to increase sequentially over the next two quarters and to gradually overwhelm the weak demand from Chinese steel mills,” the analysts wrote in the July 20 report. “The next phase of rebalancing the iron ore market will play out primarily among marginal seaborne producers.”
Iron ore with 62 percent content delivered to Qingdao rose 3.4 percent to $52.39 a dry ton on Monday, the highest since July 3, according to Metal Bulletin Ltd. The price sank to $44.59 on July 8, the lowest for data going back to May 2009, and is 26 percent lower this year.
In London, Rio Tinto dropped 0.3 percent to 2,584.5 pence at 9:08 a.m. local time, while shares of BHP climbed 0.8 percent. Fortescue Metals Group Ltd., Australia’s third-biggest shipper, lost 0.3 percent in Sydney.
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