Iron ore prices are set to slump in the
second half as more steel companies in China will probably go bankrupt, hurting
demand in the world’s largest user just as supply expands, according to Standard
Chartered Plc.
Investors should sell
September-through-December contracts on the Singapore Exchange, analyst Judy Zhu
wrote in a note dated yesterday after meeting ore producers, consumers and
traders in China over the past month. Prices are forecast to drop from an
average of $129 a ton this quarter to $114 between July and September and $108
in the final three months, said Zhu.
Iron ore entered a bear market last month
as economic growth in China slowed and mining companies in Australia boosted
output, shifting the global seaborne market into a glut. Chinese mills, which
account for almost half of world steel output, are struggling to get funds after
banks imposed stricter lending conditions. Banks from Credit Suisse Group AG to
Goldman Sachs Group Inc. predict lower ore prices over 2014.
"More
steel mills are likely to go bankrupt this year,” wrote Zhu, who is based in
Shanghai. The expected closures "could have a greater impact on iron ore prices
than the supply glut expected from Australia,” she wrote.
Iron ore with 62 percent content delivered
to the port of Tianjin declined 0.8 percent to $116.20 a dry ton yesterday,
according to The Steel Index Ltd. Prices have lost 13 percent this year,
dropping to a 17-month low of $104.70 on March 10.
"We
recommend that investors sell September, October, November and December 2014
contracts traded on the Singapore Exchange because of the increased likelihood
that prices will drop below $110 a ton,” said Zhu. While prices may rebound
above $120 a ton next month on a seasonal pickup in demand , a sharp drop from
June seems inevitable, she wrote.
Source: Bloomberg
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