Goldman Analysts Adjust Iron Ore Price Forecast due to China's Economic Slowdown
Goldman analysts have revised their Q4 2024 iron ore price forecast to $85 per tonne, down from $100, due to strong global supply and weak demand in China, the world's second largest economy. The analysts had earlier predicted a short-cover rally in Chinese iron ore prices, which has now completely reversed. They suggest that the buildup in Chinese port stocks could pressure prices lower unless lower-cost producers cut production.
Iron Ore Prices Sink to Lowest Level Since 2022
Last week, prices in Singapore fell to the $90 per tonne level, the lowest since 2022, due to concerns that global supply is outpacing demand. Prices briefly jumped to the $95 per tonne level, where Goldman advised clients to sell, noting that the iron ore's fundamental outlook remains bleak.
Strong Global Supply Despite Stabilizing Chinese Demand
Goldman analysts Aurelia Waltham, Daan Struyven, and Samantha Dart highlighted that iron ore prices recently hit a nearly two-year low of $90 per tonne, driven by strong global supply despite stabilizing Chinese demand. They noted that prices of the industrial metal have plunged by around 20% since July, but shipments remain 2% higher than last year, with similar arrivals into China. They added that India has reduced exports, but without a significant demand recovery, further production cuts from lower-cost producers are needed to rebalance the market and shore up prices.
Revised Q4 2024 Price Forecast
Due to the supply imbalance, the analysts revised their Q4 2024 price forecast down to $85 per tonne. They noted that restocking before China's Golden Week could provide short-term support. However, they said prices are expected to drop further in October due to rising stocks.
Elevated Iron Ore Stocks in China
The analysts pointed out that elevated iron ore stocks in China due to a faltering economy have driven down prices. They suggested that stocks must come down to experience a meaningful price recovery.
Depressing Iron Ore Market
The analysts provided more insight on the depressing iron ore market. They noted that following soft China macro data in July, activity came in broadly below market expectations, and their China economists have downgraded their 2024 GDP growth forecast to 4.7% from 4.9% previously. They added that year-on-year industrial production growth fell, fixed asset investment growth improved less than expected, although export growth was stronger.
Risks to Steel Production in China
Looking ahead, they maintain the view that the potential for falling exports is a key risk to steel production in China over the coming year and could result in a further decline in Chinese iron ore demand, given that they see increased support from domestic demand as unlikely.
China's Golden Week Holiday
They noted that China's approaching Golden Week holiday (beginning October 1st) could bring some price stabilisation over the next two weeks as mills restock raw materials, creating a demand pull on port stocks. They also mentioned a near-term risk of a short covering rally due to substantial short positioning in both iron ore and Chinese steel markets.
Iron Ore's Fundamental Outlook Remains Bleak
In a separate note, a team of Goldman analysts led by Aurelia Waltham and Daan Struyven said that iron ore's "fundamental outlook remains bleak" as prices traded at a two-year low. They shared a stunning chart from their report showing that only 1% of steel mills are profitable in the world's second-largest economy. As profitability collapses, hot metal output declines.
China's Steel Industry Under Pressure
China's steel industry has been under pressure amid a severe property market downturn and weak economic recovery. Last month, Baowu Steel Group Chairman Hu Wangming warned that economic conditions in the world's second-largest economy felt like a "harsh winter ."
No Imminent Recovery in China
Another team of Goldman analysts, led by Yuting Yang and Lisheng Wang, recently published high-frequency economic indicators, including consumption and mobility; production and investment; other macro activity, and markets and policy, that revealed there was no imminent recovery in China.
Goldman Cuts Brent Oil Prices Forecast
Besides cutting iron ore price targets, Goldman Daan Struyven recently slashed his expected range for Brent oil prices by $5 to $70-$85 per barrel, citing weaker Chinese oil demand, high inventories, and rising US shale production.
Bottom Line
The revision of the iron ore price forecast by Goldman analysts reflects the impact of China's economic slowdown on global markets. The strong global supply of iron ore and weak demand in China, coupled with the buildup in Chinese port stocks, have led to a bleak outlook for the industrial metal. It remains to be seen how these dynamics will evolve in the coming months and what measures lower-cost producers will take to rebalance the market. What are your thoughts on this development? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
Goldman Analysts Adjust Iron Ore Price Forecast due to China's Economic Slowdown
Goldman analysts have revised their Q4 2024 iron ore price forecast to $85 per tonne, down from $100, due to strong global supply and weak demand in China, the world's second largest economy. The analysts had earlier predicted a short-cover rally in Chinese iron ore prices, which has now completely reversed. They suggest that the buildup in Chinese port stocks could pressure prices lower unless lower-cost producers cut production.
Iron Ore Prices Sink to Lowest Level Since 2022
Last week, prices in Singapore fell to the $90 per tonne level, the lowest since 2022, due to concerns that global supply is outpacing demand. Prices briefly jumped to the $95 per tonne level, where Goldman advised clients to sell, noting that the iron ore's fundamental outlook remains bleak.
Strong Global Supply Despite Stabilizing Chinese Demand
Goldman analysts Aurelia Waltham, Daan Struyven, and Samantha Dart highlighted that iron ore prices recently hit a nearly two-year low of $90 per tonne, driven by strong global supply despite stabilizing Chinese demand. They noted that prices of the industrial metal have plunged by around 20% since July, but shipments remain 2% higher than last year, with similar arrivals into China. They added that India has reduced exports, but without a significant demand recovery, further production cuts from lower-cost producers are needed to rebalance the market and shore up prices.
Revised Q4 2024 Price Forecast
Due to the supply imbalance, the analysts revised their Q4 2024 price forecast down to $85 per tonne. They noted that restocking before China's Golden Week could provide short-term support. However, they said prices are expected to drop further in October due to rising stocks.
Elevated Iron Ore Stocks in China
The analysts pointed out that elevated iron ore stocks in China due to a faltering economy have driven down prices. They suggested that stocks must come down to experience a meaningful price recovery.
Depressing Iron Ore Market
The analysts provided more insight on the depressing iron ore market. They noted that following soft China macro data in July, activity came in broadly below market expectations, and their China economists have downgraded their 2024 GDP growth forecast to 4.7% from 4.9% previously. They added that year-on-year industrial production growth fell, fixed asset investment growth improved less than expected, although export growth was stronger.
Risks to Steel Production in China
Looking ahead, they maintain the view that the potential for falling exports is a key risk to steel production in China over the coming year and could result in a further decline in Chinese iron ore demand, given that they see increased support from domestic demand as unlikely.
China's Golden Week Holiday
They noted that China's approaching Golden Week holiday (beginning October 1st) could bring some price stabilisation over the next two weeks as mills restock raw materials, creating a demand pull on port stocks. They also mentioned a near-term risk of a short covering rally due to substantial short positioning in both iron ore and Chinese steel markets.
Iron Ore's Fundamental Outlook Remains Bleak
In a separate note, a team of Goldman analysts led by Aurelia Waltham and Daan Struyven said that iron ore's "fundamental outlook remains bleak" as prices traded at a two-year low. They shared a stunning chart from their report showing that only 1% of steel mills are profitable in the world's second-largest economy. As profitability collapses, hot metal output declines.
China's Steel Industry Under Pressure
China's steel industry has been under pressure amid a severe property market downturn and weak economic recovery. Last month, Baowu Steel Group Chairman Hu Wangming warned that economic conditions in the world's second-largest economy felt like a "harsh winter ."
No Imminent Recovery in China
Another team of Goldman analysts, led by Yuting Yang and Lisheng Wang, recently published high-frequency economic indicators, including consumption and mobility; production and investment; other macro activity, and markets and policy, that revealed there was no imminent recovery in China.
Goldman Cuts Brent Oil Prices Forecast
Besides cutting iron ore price targets, Goldman Daan Struyven recently slashed his expected range for Brent oil prices by $5 to $70-$85 per barrel, citing weaker Chinese oil demand, high inventories, and rising US shale production.
Bottom Line
The revision of the iron ore price forecast by Goldman analysts reflects the impact of China's economic slowdown on global markets. The strong global supply of iron ore and weak demand in China, coupled with the buildup in Chinese port stocks, have led to a bleak outlook for the industrial metal. It remains to be seen how these dynamics will evolve in the coming months and what measures lower-cost producers will take to rebalance the market. What are your thoughts on this development? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
