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 and analysts are lowering their price forecasts as a slowing global economy is set to cut steel output sharply.
1. DAIWA INSTITUTE OF RESEARCH
We still do not foresee a retreat of 40% to 50% YoY the range requested by Chinese steelmakers Iron ore suppliers showed willingness to compromise, as witnessed by the fact that Rio Tinto proposed a 20% drop in temporary prices.
Nevertheless, we believe there is still a rift between the two parties. If iron ore spot prices, which are showing signs of bottoming rebound both parties may compromise partly because the new fiscal year has already started.
2. MORGAN STANLEY
The outlook for the iron ore market continues to deteriorate amid a sharp collapse in global economic growth and repeated delays in implementing government stimulus packages.
We now expect a 2009 supply surplus of 47 million tonnes, up sharply from our previous estimate of 16 million tonnes. Barring a more aggressive supply response than we have modeled, world iron ore output this year will exceed total demand by 6 percent: this should drive a substantial price decline.
3. 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 likely range of contract price outcomes for these negotiations is 30% to 70% decline year on year.
4. 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.
5. 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.
6. 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.
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.