Goldman gets on the iron ore bear train

Goldman Sachs is predicting significant losses and continued iron ore gluts into next year as the metal’s weakness continues.

“We think it’s going down significantly,” Katie Hudson, managing director and senior investment manager at Goldman Sachs Asset Management Australia told Bloomberg.

“The major producers are adding incremental volume at around $20 a ton, that gives you a sense of where the vulnerability is.”

The stance comes only days after the metal hit a three month low, slipping to just over US$50 per tonne.

“We have a more cautious view on the iron ore price today that reflects both our concern about increasing supply and what we see as a  more modest demand environment,” Hudson said,

She outlined a drop to below US$50 per tonne for the long-term view.

“The iron ore price has got significant downside risk from here.”

Goldman is not the only group bearish on the metal.

Last week vice president for Citigroup’s China commodities research group, Ivan Szpakowski, pointed to a new recent low for the metal of US$40 per tonne next year.

According to Szpakowski, the slowdown in Chinese demand coupled with oncoming oversupply thanks to record production rates from Vale and BHP is likely to drive down the price below US$50 per tonne by the end of this year, and to US$40 per tonne or lower by the end of the March quarter next year.

It comes on the back of the World Steel Association Short Range Outlook (SRO) for 2015 and 2016, which forecast that global steel demand will decrease by -1.7% to 1,513 Mt in 2015 following growth of 0.7% in 2014, and in 2016, it is forecast that world steel demand will show growth of 0.7% and will reach 1,523 Mt.

Much of the market is closely watching China, after the People’s Bank of China cut interest rates down to 4.35 per cent, and the nation prepares for its fifth plenary session, which will set the course for China’s economic growth from 2016 to 2020.

 

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