Goldman Warns Iron Ore’s Jump Into the $70s ‘Is Not Sustainable’ – by Krystal Chia (Bloomberg News – January 9, 2019)

(Bloomberg) — Iron ore’s rally over the past month, with benchmark material pushing back into the $70s, is at risk as banks including Goldman Sachs Group Inc. and Morgan Stanley warn that prices are poised to drop back.

While industry fundamentals have improved, current prices won’t last as more supply is on the way, Goldman analysts including Hui Shan said in a note received on Wednesday. The bank expects a decline to $60 in six months.

After a sell-off in November driven by declining mill margins, iron ore staged a comeback with benchmark spot prices surging 11 percent in December, the biggest monthly gain in more than a year. The raw material has maintained that advance even as signs of slowing growth stacked up in China, the top user.

“The $75 a ton iron ore price is not sustainable for two reasons,” the Goldman analysts said. “First, part of the rally was fueled by mills restocking ahead of the Chinese New Year. Second, supply is set to increase in 2019.”

Spot ore with 62 percent iron content hit $74.70 a ton on Monday, the highest since Nov. 19, according to The raw material capped a fifth weekly gain on Friday, the best run since August, and was at $74.20 on Wednesday.

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