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The Metal Bulletin 62% iron ore spot price fell by 21.4% in the first 18 days of April to as low as US$63.20 per tonne last Tuesday, but has risen by close to 8% over the past three sessions to $68.22/t as of Friday.
The drop was widely expected, but analysts still disagree on the extent, with Citi predicting a fall back into the $40s.
ANZ analyst Daniel Hynes said that while there had been concern around rising inventories this year, recent data had been positive.
“Chinese steel output in Q1 hit a record 201.1 million tonnes, up 4.6% year-on-year,” he said.
“Over the same period, China’s iron ore imports are up 12.2%. Plus on the macro front, China has recorded much better than expected trade numbers and GDP growth.”
But Hynes noted that sentiment had turned bearish around Chinese property and infrastructure, making the likelihood of a snap rebound low.
“However, with China’s steel capacity closure program still on track and economic growth looking relatively stable, we expect the iron ore market to be balanced,” he said.
“In fact with industry costs starting to rise, key support levels have been breached, suggesting prices should recover.”
ANZ is expecting volatility in the short-term due to negative sentiment, but still expects prices to settle in the $70-80 per tonne range for the rest of the year.
That’s still higher than what most other analysts expect, including NAB, which lowered its forecast on Friday to $60/t for the second half of this year and into next year.
“Market fundamentals don’t appear supportive of a rebound in spot prices, given strong iron ore supply that has driven Chinese stockpiles to record levels, while demand is expected to soften, as Chinese construction activity begins to wane,” NAB said.
Fortescue Metals Group is expecting the iron ore price to settle at around $60-65/t, with the discount between high-grade and low-grade ores to narrow as the price comes down.
NAB noted that if the differential widened enough, steel mills may revert back to lower-grade ores to maintain profitability.
“This may have started already – given recent spot market trends,” it said.
The spot price peaked at $95/t in February.
