According
to the World Bank, if history is any guide the global glut in iron ore may
persist for as long as two years which forecasts that the steel making raw
material will average USD 75 per tonne this year.
Mr John Baffes, a senior economist at the lender
said that “From experience from earlier iron ore episodes as well as other
metal markets, it takes about one to two years for either excess supplies to
get back to normal levels or excess demand to be met by larger supplies”
Mr Baffes, who’s worked at the bank for more
than two decades said that “Weak economic growth prospects in the global
economy is the key reason behind the weakness of most industrial commodity
prices, including iron ore. China may grow 7.1% in 2015 down from about 7.4% in
2014.
Morgan Stanley forecasts that the glut will rise
through to at least 2018. China’s economy, which consumes about two thirds of
iron ore transported by sea, slowed last year to the weakest pace since 1990.
Iron ore tumbled 47% in 2014 and extended losses
this year as surging low-cost supplies from producers including Rio Tinto Group
and Fortescue Metals Group Ltd outpaced demand growth in China, spurring the
surplus.
Source – Bloomberg