iron ore market shortage in 2014

Bloomberg rported on April 23 that global financial services firm Morgan Stanley has raised its forecast for iron ore prices in the third quarter of 2013 on prospects that demand will improve in China, the world’s biggest buyer of the commodity, and a global surplus will be seen in 2015, a year later than previously projected.

Iron ore prices have fallen 13 percent since reaching a 16-month high in February as China’s economic growth unexpectedly lost momentum in the first quarter, threatening to damp demand for the steel-making ingredient. Meanwhile, a string of miners ramping up production have fuelled concerns about surplus supplies. Considering these developments, investment bank Goldman Sachs and Australia’s official commodities forecasting agency -- The Bureau of Resources and Energy Economics (BREE) – last month projected that iron prices will fall drastically in the coming years (Bearish Iron Ore Forecasts Take Toll on Mining Stocks). Against this backdrop, Morgan Stanley is now giving a more bullish outlook for the iron ore market.

According to Morgan Stanley analysts Peter Richardson and Joel Crane the price of ore with 62 percent iron content delivered to China may average $128 a tonne in the third quarter, up from $125 a tonne estimated in January. The analysts lowered their price forecast for the final three months of the year to $125 a tonne from $130 and reduced their forecast for 2014 by three percent to $117 a tonne, but kept their prediction for 2013 at $133 a tonne.

“Optimism about Improving Demand Might Be Rewarded”

According to specialised consultancy services provider Shanghai Steelhome Information, steel reinforcement-bar inventory fell in the week ended April 12 to 9.99 million tonnes, which is the first time it dropped below 10 million tonnes in six weeks. Bloomberg quoted Morgan Stanley analysts as commenting: “The latest steel inventory data suggests that finally optimism about improving demand might be rewarded as both mill and distributor inventories have started declining in absolute terms and in days of consumption for the first time in several months.”

The investment bank has also forecast a delay in the expected global surplus of iron ore initially projected for 2014. While in January Morgan Stanley estimated 3.3 million tonnes of excess iron ore for next year, now the bank expects the seaborne iron ore market to be in deficit of 16.2 million tonnes in 2014. The analysts have also raised their projection for iron ore surplus in 2015 to 49.8 million tonnes from the previous forecast of 40.1 million tonnes. Bloomberg quoted them as saying: “Our assessment of the seaborne market balance and price outlook in the light of the supply side issues and the improved prospects for Chinese demand is that 2013 and 2014 will be years in which the seaborne market remains in deficit.”

Morgan Stanley also predicted in its report that iron ore deficit will progressively shrink as producers in Australia, Brazil and South Africa increase supply. Looking to China on the consumption side, Morgan Stanley said that the country’s demand will total 840 million tonnes in 2013, up from 832 million tonnes projected in January.

According to The Steel Index Ltd, on April 22, the price of iron ore with 62 percent content delivered to the Chinese port of Tianjin was unchanged at $138 a dry tonne.