Iron ore prices may see short-term strength as a result of disruption from Tropical Cyclone Veronica in Western Australia and Vale’s expectation of reduced sales volumes this year, Barclays said.
The bank upgraded its 2019 forecast to $75/dry mt CFR China from $69/dmt previously, and introduced a forecast for 2020 at $70/dmt, in a note to clients.
The S&P Global Platts 62% Fe IODEX benchmark rose to $93.10/dmt CFR North China on Wednesday, up $3.45/dmt day on day, as cyclone disruption in Australia in late March cut loading programs for April due to port and rail interruptions, pushing up prices.
Barclays said the rise to its price forecast followed Vale’s latest forward shipment guidance from last week, the first since its Brazilian dam disaster led to unplanned idling of mines.
This provided greater clarity on the outlook for iron ore supply, Barclays said.
Vale said total iron ore sales may be cut by around 50 million-75 million mt this year, equivalent to a fifth of the company’s expected total iron ore output.
Vale’s iron ore production cutbacks involve expedited ongoing work to finish decommissioning all its upstream tailings dams, and unexpected curbs on permitting as authorities recheck the safety of dams and mining structures following the fatal dam burst late January at Vale’s Feijao complex.
The Platts IODEX has been supported since the end of January. However, Barclays sees iron ore prices falling on slower global economic activity this year, the bank said. Higher supplies are expected to push prices lower next year, it said.
“We upgrade prices through the balance of the year but reiterate our expectation that iron ore will decline as we progress through 2019 amid recovering supply and slowing economic growth,” Barclays said.
Barclays said global economic growth is expected to drop to its slowest pace since the last commodities slump in 2015-2016. Chinese GDP growth rate is forecast to slow, and Chinese steel industry expectations are also for crude steel output growth to slow significantly in 2019, with ferrous scrap helping substitute demand for iron ore.
“When global GDP slowed to the 3.6% in 2015, iron ore [prices] slumped 42% to $56/dmt and copper fell 20% to $5,514/mt. Even with restrained output in iron ore and copper, it will become increasingly difficult for supply alone to support prices against a slowing global economy in the second half of the year,” Barclays said.