Iron Ore Forecasts Raised by World Bank After China-Led Rally – by Jasmine Ng (Bloomberg News – April 27, 2016)

Iron ore forecasts for the five years through 2020 have been revised higher by the World Bank after the commodity rallied in the first quarter on a surge in steel prices in China, the largest user.

The raw material is expected to trade at $50 a metric ton this year, $51.50 in 2017 and extend gains to $56.20 by 2020, the lender said in its latest quarterly commodities outlook. That compares with forecasts of $42 for this year, $44.10 in 2017 and $51 by 2020, according to the bank’s report in January, when it said it expected iron ore to post the biggest loss among metals this year.

Iron ore soared “in February-March on a spike in steel prices and restocking at Chinese mills ahead of the construction season” the bank said. “In addition, there were some disruptions to iron ore seaborne supply, which further tightened the market. Prices continued to rally in April driven by renewed growth prospects in China.”

The commodity’s turnabout in 2016, which has also been driven by a surge in speculative trading in China’s futures markets, has caught many analysts forecasting a fourth year of losses off guard. Prices have rallied as mills in China pushed steel output to a record in March amid a property rebound and additional stimulus, boosting miners’ shares. While it raised its price forecasts, the Washington-based bank still warned supplies will go on increasing.

‘Further Closure’

“Significant volumes of low-cost capacity are expected over the next two-to-three years, while high-cost capacity is being shut down,” the bank said. “Further closure of high-cost capacity is required to balance the market.”

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