Goldman Sachs Group Inc. cut its estimate for iron ore prices this year on expectations demand will moderate and steel production will slow in China, the world's largest buyer.
Iron ore may average $139 a metric ton this year from a previous estimate of $144, analysts Christian Lelong and Jeffrey Currie wrote in a report today. The bank has a neutral outlook on the commodity and prices may be supported at about $140 by the need for high-cost Chinese mine production to balance the market in 2013, the report showed.
Prices dropped 7.1 percent this year as China's industrial output had the weakest start to a year since 2009 and amid concern curbs on construction in the country will reduce demand for the commodity used to make steel. Morgan Stanley said March 7 iron ore had peaked and would decline over the rest of the year, joining analysts from Deutsche Bank AG to Credit Suisse Group AG in forecasting lower prices.
"We expect global seaborne iron ore demand to revert back to its historical growth rate of 2 percent per annum,' Goldman Sachs said. "Steel production growth has slowed in China and we expect it will remain below GDP growth rates in the future.'
Tianjin Imports
Iron ore with 62 percent content delivered to the Chinese port of Tianjin was at $134.60 a dry ton yesterday, according to The Steel Index Ltd. Swaps are trading at $132 a ton for April, $127.50 for the second quarter and $121.25 for the third quarter, according to SSY Futures Ltd., a broker.
China will expand 8.1 percent this year and 8 percent in 2014 after the weakest annual growth in 13 years in 2012, according to the median estimate of analysts compiled by Bloomberg. The nation's new leadership is focusing on building a consumer-led economy as a construction boom wanes.
New iron ore supplies and slower growth in steel demand will weigh on prices during the second half, Greg Lilleyman, Rio Tinto Group (RIO)'s president of Pilbara operations, said today. Steel demand growth in China has slowed from 20 percent in 2010 to 2.1 percent last year, according to Citigroup Inc.
Steel production is exceeding China's domestic consumption and will likely decline in the near term, Commodore Research & Consultancy said in a report today. China's cabinet on March 1 introduced measures to tame house prices and ordered stricter enforcement of taxes on sales as authorities step up a three- year campaign to cool the real-estate market.
Mine Investment
China's domestic iron ore production may also be more resilient than expected, Goldman Sachs said. Continued investment in large-scale mines is likely to offset the loss of marginal mines and moderate future demand for imports, it said.
The country imported 56.42 million tons of ore in February from 65.54 million tons a month earlier, according to China's customs administration. Idled Chinese mines with capacity of 100 million tons a year will return to the market from March after the winter ends, Macquarie Research said in a Feb. 22 report.
Iron ore is measured in dry tons, or metric tons less moisture. At Tianjin port moisture can account for 8 percent to 10 percent of the ore's weight.
Source: Bloomberg