Iron ore in the $70s a ton may be as good as it gets for some time. After rallying hard in June and July, the commodity may see its gains unravel over the second half as steel production in China eases back from a record pace just as global miners pump up volumes.
The robust demand that’s supported gains may fade as steelmakers start to dial back output, according to Capital Economics Ltd., which came out first among forecasters in the second quarter, according to data compiled by Bloomberg. Others expecting a drop include Citigroup Inc., Sucden Financial Ltd., Axiom Capital Management Inc. and hedge fund Academia Capital.
“There was some fundamental support for iron ore’s rally, namely strong growth in China’s steel output,” Caroline Bain, chief commodities economist at Capital Economics, said by email. “Stocks at China’s ports are now stubbornly high and if, as seems likely, steel production and demand eases back later in the year, then we see iron ore prices coming under renewed pressure.”
Iron ore has surged on sustained demand from China, with mills benefiting from rising product prices and strong profit margins after the government shuttered some capacity. Remaining producers are making record volumes, helping absorb rising supplies from Brazil and Australia and aiding miners including Rio Tinto Group and Vale SA. Even those who aren’t deeply pessimistic on iron, such as Clarksons Platou Securities Inc., do expect some retracement.
“While we believe the market is far too bearish on iron ore, we don’t expect prices to stay here,” Jeremy Sussman, managing director for metals & mining, said in an email, predicting a drop to about $60 in the final quarter and holding at that level through 2018.
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