Goldman sees significant ‘downside’ risk for iron ore – by Jasmine Ng and David Stringer (Sydney Morning Post/Bloomberg – October 28, 2015)

Iron ore is sinking back toward $US50 a metric ton as expanding low-cost supply and sputtering demand in China spur concern a global glut will persist into 2016, with Goldman Sachs frecasting significant losses.

“It’s going down significantly,” Katie Hudson, managing director and senior investment manager at Goldman Sachs Asset Management Australia, said in an interview on Tuesday. “The major producers are adding incremental volume at around $US20 a ton, that gives you a sense of where the vulnerability is.”

Ore with 62 per cent content delivered to the Chinese port of Qingdao rose for the first time in seven days, adding 0.9 per cent to $US51.50 a dry ton on Tuesday after falling to $US51.03 Monday, the lowest since July 16, according to Metal Bulletin Ltd. The raw material – which bottomed at $US44.59 on July 8, a record in daily price data dating back to 2009 – is set for the first monthly loss since July.

The renewed decline shows the global market has yet to reach a balance as the biggest miners boost cheap output while steel consumption contracts in China.

Rio Tinto Group and Vale reported increases in quarterly supply this month as data from China showed slowing economic growth and a further drop in steel production. With many mills in China losing money as steel prices languish, Shanghai Baosteel chairman Xu Lejiang has forecast nationwide output may eventually slump 20 per cent.

“We have a more cautious view on the iron ore price today that reflects both our concern about increasing supply and what we see as a more modest demand environment,” Hudson said in Melbourne, adding that the bank forecasts prices below $US50 on a long-term view. “The iron ore price has got significant downside risk from here.”

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