You have to admire old Ivan's persistence. It seems the further away from the truth he gets the louder he shouts. Iron ore at sub $50 by september, Iron ore sub $40 by december, Iron ore surplus 55 million tonnes by December etc etc.......................
The price of iron ore could sink as low as $US40 a tonne early next year, according to Citigroup's China commodities strategist, who attributes the recent bounce in the metal's value to a short-term match between supply and demand.
Overnight, the price of iron ore slipped US14¢, or 0.3 per cent, falling for the third consecutive day to trade at $US52.79 a tonne, according to Metal Bulletin. The steel-making ingredient hit a seven-year low of $US44.59 on July 8 this year.
Ivan Szpakowski says China's slowdown, and the resulting shake-out of high-cost miners and steel producers, would drive the price down to $US50 a tonne by the end of this year, and then $US40 or lower by the end of the March quarter in 2016, falling below July record.
Iron ore is tipped to drop further.
China is the world's top steelmaker, accounting for about half of global output, and is the largest buyer of seaborne iron ore. It is by far Australia's largest trade partner, with shipments of iron and coal accounting for about 65 per cent of total goods exports to the country.
China's steel industry, the largest in the world, is bleeding cash and every producer is feeling the pain, according to the head of the country's second-biggest mill by output, which raised the prospect that nationwide production may shrink 20 per cent.
Szpakowski ascribed the recovery in the iron ore price over the past few months, before it lost steam, to volatility in shipment volumes from Australian ports, coupled with steady demand from Chinese steel mils.
There had also been some contraction in China's domestic supply as high-cost producers dropped out, opening space for imports. Demand stability 'will not last'
However, recent stability in demand would not last, he said, as China's transition away from heavy industry and mass-scale manufacturing towards a more consumption- and services-based model continued apace.
"We've had a massive slowdown in demand growth - both structural and cyclical - in the commodities space, and the question about the transition away from heavy industry remains how much along we actually are," he said on the sidelines of Citi's annual Australia and New Zealand Investment Conference in Sydney.
"If you look at steel demand and you look at diesel demand - these are the two largest industrial commodities in China - growth for both of those has been negative this year.
"You can add coal to that as a third major one.
"So, clearly, you already seeing a significant shift taking place."
At the same time, steadying supply from Australia and production ramp-ups in Brazil would again drive up supply just as Chinese steel production was reduced, said Szpakowski.
"Chinese steel mills, despite losing money, have maintained production in order to maintain credit lines with the banks, which often assess debt-servicing ability based on operating rates," he said.
"There has also been a desire by the steel producers to try to hold on longer than the competition, to outlast them in the hope that they would cut production.
"But there's only so long that they're going to be able to operate, that their balance sheets will hold with negative margins," Szpakowski said.
His view, however, is more bearish than other sector analysts, some of whom suggest that China's efforts to arrest the pace of its economic slowdown will be good for commodity demand.
Further devaluation of the yuan will lift steel exports, says Prestige Economics' president Jason Schenker, who sees the iron ore price trading between $US58 and $US68 next year. HSBC is slightly less upbeat, forecasting a range of between $US50 and $US60 for next year.
"As of now, there's been interest rate cuts and they've allowed their currency to be devalued," Schenker told Bloomberg. "By the end of next year, China will probably be in a much better place."
(20min delay)