Goldman Cuts Iron Ore Price Forecast, Investing.com Says Supply Cuts Needed

Investing.com — Goldman Sachs in a note on Monday revised its price forecast for the fourth quarter of 2024, lowering the expected price to $85 per ton from $100 per ton.

This adjustment reflects growing concerns about an oversupply in the global iron ore market, exacerbated by persistently strong supplies and weakening demand from China.

Goldman Sachs analysts warn that without substantial supply cuts, the market will remain unbalanced, leading to further downward pressure on prices.

The spot price of 62% Fe iron ore recently fell to a near two-year low of $90 per tonne, down 20% since July 2024.

However, global iron ore supplies remain robust, with daily deliveries up 2% year-on-year.

This constant supply, along with sluggish demand, drives the market into a surplus.

“While India has reduced exports without a significant recovery in demand (which we see as unlikely), we believe producers further down the cost curve will also need to cut production to rebalance the market (as port stocks remain with 30 million tons more). average from September 2016-2023),” the analysts said.

While China’s iron ore consumption has shown signs of stabilization, overall demand remains low. The weak macroeconomic outlook for China, including a low GDP growth forecast of 4.7% for 2024, signals that domestic demand will not provide enough support for a recovery in iron ore prices.

In addition, China’s steel production, which is closely linked to iron ore demand, faces significant risks. After two months of declines, August saw a 21% month-on-month increase in steel exports, but the longer-term outlook remains uncertain as the potential for lower exports threatens to further weaken demand.

Given the persistent oversupply, Goldman Sachs analysts argue that producers further down the cost curve will need to implement supply cuts to restore market balance.

The brokerage suggests that prices may have to fall further to around $80 a tonne to remove excess supply from India and other marginal producers.

This price point would put pressure on supply further down the cost curve, leading to the necessary production cuts.

In the short term, Chinese steel mills may engage in replenishment ahead of the “Golden Week” holiday in early October, which could provide temporary support to iron ore prices.

Recent data showed a 2.6 percent weekly increase in steel mills’ iron ore stockpiles, marking the biggest increase since the pre-Lunar New Year period.

However, this replenishment is unlikely to offset the wider glut in the market.