Bloomberg News

Iron Ore May Extend Falls to $95 a Ton, Morgan Stanley Says

November 01, 2011

(Updates to add analyst comment in fourth paragraph.)

Oct. 31 (Bloomberg) -- Iron ore prices may fall to their lowest in more than two years amid weak demand from traders and steel mills in China, the biggest buyer, before rebounding next year, Morgan Stanley said.

Prices may drop to as low as $95 a metric ton in the short term, Melbourne-based analysts Peter Richardson and Joel Crane said today in an e-mailed report. They traded at $116.90 a ton on Oct. 28, according to The Steel Index Ltd., and have slumped 32 percent since the start of the month.

The price has been pushed lower by increased supplies and China’s credit policy, Brazil’s Vale SA, the world’s biggest exporter, said last week. Prices are expected to average $160 a ton next year as China’s steel mills restock and a supply deficit persists, Morgan Stanley said.

“Absent a complete implosion of steel demand, which based on leading indicators of industrial production, is not our base case expectation, the current spot iron ore price looks increasingly like a cyclical correction with an on-going bullish trend,” the analysts said.

There have been three price declines of more than 25 percent since mid-2008 and these corrections were followed by even more powerful price rises, Morgan Stanley said.

Prices may rebound to trade above $140 ton by the end of the year as the pace of destocking in China is “unsustainable,” Macquarie Group Ltd. said today in an e-mailed research report.

--Editors: Keith Gosman, Rebecca Keenan

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net


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