Iron Ore 2019 Price Forecast Update

Over the last month of trading, iron ore prices have dropped 8.5%. This comes after a recent sell-off tied to a downturn in China’s economic growth.

The spot price for iron ore in 62% fines finished in November at US$65.95, which was marginally lower than its November peak of US$77.20, as reported by Fast Markets MB.

When investing in something as tricky as iron ore, economic conditions are imperative to watch, and it’s these conditions which, while sometimes volatile, could set up a commodity comeback.

Iron ore price weakened by demand downturn

The weakness seen in iron ore prices this week can be linked to a widespread slowdown in Chinese economic growth.

According to (AFR), prices are also ‘reflecting last week’s bear market correction for China’s benchmark rebar steel contract.’

With little chance of rebound insight, Liberum analysts Richard Knights and Ben Davis commented in a November note (as reported in AFR):

We think the demand down cycle has further to go based on weakness in Chinese credit growth and expect pressure on steel prices and mill margins to intensity in the near-term,

With spot mill profitability hovering just above break-even for hot-rolled coil and declining quickly for rebar, the incentive to use more expensive, higher grade material is dissipating and we expect it should result in much lower iron ore grade premiums if history is any guide,’ the Liberum analysts added.

Iron ore price facing lowered 2019 forecasting

November saw a weak Purchasing Managers Index (PMI) for China, which was released on Friday.  With it came a tumbling of 2019 outlooks falling short of desirable outcomes.

Liberum Analysts recommended that investors stay away from big companies such as  Rio Tinto Ltd [ASX:RIO] and  BHP Billiton Ltd [ASX:BHP], according to Mr Knights and Mr Davis:

In the six years of Chinese steel PMI data, the new orders reading has only fallen into the 30s on seven occasions with the mining index falling in the following month on five out of seven with an average return of minus 3 per cent, 

However, November’s data does — according to Liberum Analysts — run the risk of cuts, most likely driven by overstocking September and October.

The end-game is weaker demand over the winter period. With steel mill spot profitability in China teetering around break-even, the likelihood in a big acceleration in iron ore demand in the next one-three months appears very low’.

Investors should note that iron ore’s volatility, supported by a range of factors aligning a sell-off in iron ore and steel prices now, is mostly short-term.

China’s economic slowdown isn’t recent news by any means, so it should be expected that the iron ore sector is facing downward pressure.

But stack this against resource and commodity growth experienced in the US and Australia, we are still seeing a lift in resources.

Despite slowing down, China’s economic state is still expanding at one of the fastest rates in the world. So investors shouldn’t be shocked to see a bit of a correction away from high prices.

More to come.


Ryan Clarkson-Ledward,
For Markets & Money

Ryan Clarkson-Ledward is a junior analyst for Markets & Money. Ryan has degrees in both communication and international business. His priority is bringing you the latest price updates on stocks through ASX updates, as well as supporting Sam Volkering with background research. As part of the team at Markets & Money his aim is to provide unbiased and relevant news for readers. Ryan’s work with Sam is designed to provide research that complements Sam’s analysis for small-cap and technology stocks. Together, their objective is to break through all the jargon and give you the hard facts to inform your investment decision-making. Ryan writes for:

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