Iron ore may extend a slump into the low-$40s as supplies swell and demand reaches a short-term peak amid steel mill restarts and ramp-ups in China, according to Citigroup Inc., which cut its forecasts by as much as 20 percent over the next year.
The nadir in prices may occur in six to eight months, analysts including Tracy Liao wrote in a report received Monday. Iron ore is seen at $51 a metric ton in the third quarter compared with a previous estimate of $64, and at $48 in the final three months of the year, down from $60.
The raw material has sunk by more than a third since rising to almost $95 in February as global output increases, with miners such as Vale SA in Brazil and Australia’s Roy Hill Holdings Pty boosting capacity, and China’s efforts to curb financial leverage hurt demand.
The pullback in iron ore is in contrast to surging prices of steel reinforcement bar, and Citigroup estimates that mills have ramped up output to a maximum because of the robust margins.
“Chinese blast furnace utilization and its associated iron ore demand reached a near-term peak,” the bank said in the report dated June 19. “We foresee more downside risks to iron ore prices and anticipate the near-term trough to occur in the fourth quarter and first quarter.”
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