* Iron ore seen at average $56/T in 2015, $58 in 2016
* Both estimates down from January poll
* Supply growth, falling China steel demand to drag
SINGAPORE, May 13 (Reuters) - Growing iron ore supply from mega miners and shrinking Chinese steel demand will likely stunt a recovery in prices this year and next, a Reuters poll showed, with some analysts saying the worst may not be over for the glut-hit commodity.
Prices for the steel-making ingredient have rebounded more than a third since touching a decade-low of $46.70 a tonne in April, a sharp rally that could be curbed as top Australian and Brazilian miners stick to plans to boost output even as China's demand-growth slows.
Benchmark 62-percent grade iron ore <.IO62-CNI=SI> will average $56 a tonne this year and $58 in 2016, according to median forecasts in the poll of 16 analysts.
That is below average estimates in a January survey of $68 and $65 respectively. Prices this week hit a 10-week high of $62.50.
"If the big miners continue to produce and compete in gaining market share, then the bearish bias continues and we have not yet hit bottom," said Kelly Teoh, iron ore derivatives broker at Clarksons Platou Futures.
"The bottom will be where it's closest to cost or the price that these large miners are willing to withstand the pain," said Teoh, who expects a $45 average price this year and next.
With costs below $20 per tonne, Australian miners Rio Tinto and BHP Billiton are best-placed to withstand further price drops.
Julius Baer analyst Carsten Menke expects prices to fall to$40-$45 later this year and early in 2016. "Our bear case is $35 over the next 12 months," he said.
While BHP and No. 1 iron ore miner Vale have signaled willingness to moderate production growth, both are set to continue lifting output.
SHRINKING FEELING
Morgan Stanley, which sees a global iron ore surplus of 125 million tonnes this year that could nearly triple by 2020, expects the current rally to be capped at $70-$80 per tonne by midyear.
The recent recovery in prices, spurred by slower exports from Australia and Brazil in April due to bad weather and as Chinese mills replenished run-down inventories, has encouraged the return of some smaller producers, adding to supply that could eventually limit price gains.
A weak Chinese steel market is another major headwind for iron ore, with most analysts predicting a further drop in demand.
Chinese crude steel consumption shrank last year for the first time since 1981 and fell again in the first quarter, spurring producers to sell more steel overseas.
"In the absence of concrete measures to stimulate steel consumption in the property and infrastructure sectors, we continue to forecast a 1-percent contraction in 2015 steel production, with steeper declines expected post 2017," Goldman Sachs said this week.
Source: Reuters |
