Will iron ore rebound?

China , Iron ore Sep 27, 2012 No Comments

IronIron ore prices hit a three-year low of $86.70 per ton earlier this month on fears of a slowdown in Chinese demand. So far iron ore is down 25% this year and its by product steel dropped 10 percent in 2012. Iron ore has struggled to sustain price gains since rebounding, with the outlook for Chinese steel demand staying blurry despite a recent increase in spot steel and futures prices.

There’s not going to be a recovery in steel in the next six months,” says Craig Bouchard, who founded Schiller Park, Illinois- based Shale-Inland in 2010, a diversified steel services company. “You can’t expect a recovery in iron-ore prices until we see a recovery in the world economy.”

The head of ANZ’s commodities research, Mark Pervan, said the market was beginning to look more ”real” after returning above $100 a tonne (the price tuesday closed at $103.70 a tonne).

Uncertainty about the outlook for steel demand in China is also likely to pressure prices, with the sentiment boost from Beijing’s approval of more than $150 billion in infrastructure projects this month fading. “It’s going to be very volatile ultimately, my personal feeling is that it will probably go below $100 this week,” said Jamie Pearce, head of iron ore brokering at SSY Futures, part of the shipbrokering group Simpson Spence and Young.

Citigroup’s research arm estimates that iron ore supply will hit 470 million metric tons before 2012 is out. The concern is that “ore demand is slowing in China, the leading importer and steelmaker.” “The million-dollar question” is whether mining companies in the Asian nation will reduce output to balance the market.

Citgroup forecasts the iron ore price to remain at $125 a ton this year and $120 for 2013. “Its estimated supply-demand balance implies a 7.2 million-ton global surplus in 2012, the first in at least five years, rising to 20.7 million tons in 2013.”

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Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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