Iron ore rises but outlook clouded, says McKinsey – by Jasmine Ng (Sydney Morning Herald – April 12, 2016)

Iron ore will probably snap back to $US45 a tonne as a nascent real-estate rebound in China won’t bolster construction demand in the world’s biggest user and supplies remain plentiful, according to McKinsey & Co.

The commodity will trade between $US45 and $US50 a ton this year, eroding a first-quarter rally to as high as $US63.74 that was spurred by speculation demand growth will rise, Oliver Ramsbottom, a Tokyo-based partner, said in an interview. There’s no real improvement in Chinese steel consumption, said Ramsbottom, who’s covered commodities for almost two decades.

Iron ore’s 23 per cent surge this quarter has surprised many forecasters who’d expected a fourth year of losses driven by sinking steel demand in China and rising low-cost supply. The rebound hasn’t swayed many sceptics, with banks including Goldman Sachs Group reiterating bearish forecasts.

McKinsey’s view that iron-ore gains will probably prove transient came as one of China’s largest mills warned that the global steel industry’s crisis has become so severe that it’s comparable to a new “Ice Age”.

“There’s plenty of supply, there’s relatively weak downstream demand and sure, you get some uplift in price, but it’s not really that significant,” said Ramsbottom. “There’s little reason that iron ore is going to go above $US45 to $US50 per ton. If anything, there are probably more downside risks.”

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