Goldman Sachs Group Inc. has one piece of advice after this year’s dramatic iron ore rally: go short.
“We think this market will go back to $35 during the fourth quarter,” analyst Christian Lelong said in an interview. That’s 50 percent below Thursday’s close of $70.46 a dry metric ton, the highest level since January 2015. “Our expectation is the oversupply in the iron ore market will return.”
Iron ore has surged in 2016, in contrast to the previous three years when a slowing Chinese economy hurt steel demand and supplies increased. This year, policy makers in China have added stimulus, presiding over a revival in the property market that’s boosted the outlook for steel consumption and prices. Still, burgeoning output and stalling demand growth may drag prices down once again, according to Lelong.
“Going into the second half of the year, what are you going to need to absorb all that iron ore supply?” New York-based Lelong said by phone from London on Thursday. The $35 forecast is for average prices in the final three months, and repeats a figure given by the bank in recent reports. “It’s going to be very hard to have strong enough demand growth in the Chinese steel sector to keep things in balance.”
Ore with 62 percent content delivered to Qingdao fell 5.9 percent to $66.33 on Friday, paring Thursday’s 8.8 percent surge, according to Metal Bulletin Ltd. data. Prices have rebounded 73 percent since bottoming at $38.30 in December, surprising many analysts who’d seen further losses.
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