Iron ore may slump 24 percent by the end of this year as miners expand production of the raw material and Chinese restocking demand for the raw material slows, according to Deutsche Bank AG.
The price of the commodity, last assessed at $150.60 a dry metric ton by The Steel Index Ltd., will slide to $115 a ton by December, Deutsche Bank analyst Daniel Brebner in London said in a report dated March 1. Supply of the raw material will expand by 9 million tons in the second quarter after shrinking in the three months ending March 31, he said.
The Steel Index’s benchmark, based on prices at Tianjin in China, rallied 74 percent from an almost-three-year low on Sept. 5, amid speculation Chinese government projects boosted demand for the steelmaking raw material. Swaps used to hedge prices and bet on Chinese growth are trading at $142.75 a ton for March, $135.50 a ton for April, and $132 a ton for the second quarter, according to SSY Futures Ltd., a broker.
“Confidence in Chinese government growth objectives, expectations for steel mill restocking, improved seasonality and a pause in seaborne supply growth have been important drivers” of the rally, Brebner said in the report. “A number of these factors could fade over the next couple of months -– particularly the restocking, seasonality and supply dynamic -– and we see a peak in spot prices by early Q2.”
Chinese steel-demand growth will slow during the next two years and prices will fall toward domestic miners’ costs of $110 a ton, Deutsche Bank said. An increase in steel scrap available from recycled consumer goods will curb demand for seaborne iron ore by 2018, cutting prices toward $80 a ton, according to the report.
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