Reuters reported that global miners and steel firms are locked in annual talks to settle iron ore term prices for the year starting April 1st 2009 and analysts are lowering their price forecasts as a slowing global economy is set to cut steel output sharply.
1. Merrill Lynch
We forecast a 30% drop, mainly because we expect the majors to delay projects and reduce production supply in order to support product prices. The market is more bearish at a 50% cut, which would take prices to below 2007/08 levels.
It would probably require a cut of more than 50% to begin troubling the producers. So the likely range of contract price outcomes for these negotiations is a 30% to 70% decline YoY."
2. Deutsche Bank:
Against the backdrop of plunging global steel production, producer curtailments and a moribund spot price, the Chinese will take the price down closer to 2007 levels.
3. Macquarie:
This reflects the reality of an oversupplied iron ore market and a 2009 steel market substantially weaker than we had previously thought.
Our forecasts assume that prices do not fully roll back to 2007 levels. This is due to the fact that the major producers have taken steps to quickly adjust supply with demand and also due to a sharp downward adjustment in domestically produced iron ore in China.
4. Goldman Sachs JBWere:
Global seaborne trade in iron ore is expected to contract by almost 70 million tonnes this year, with all major iron ore importing regions expected to register large double digit percentage falls in crude steel production.
We believe the major contract suppliers of iron ore will eventually be forced to concede bigger than previously expected price cuts in order to compete with spot suppliers.