Macquarie’s Economics and Commodities Strategy Team has cut its price forecasts for iron ore by 1% in 2024, 10% in 2025, and 11% in 2026. Their rationale is based upon a double whammy of “stalling demand” against a longer-term backdrop of increasing supply.
In terms of demand, Macquarie’s view is one of “limited structural demand growth”. On the supply side, they noted that there are conflicting short and longer-term factors at play.
In the short term, “current prices arguably already reflect the extent of oversupply in 2024”. Macquarie says that as a result, their Commodities Strategy team “has recently moved to tactically bullish on iron ore in the near-term”.
Figure 1 - Iron Ore Price Update versus consensus. Source: Macquarie Research, Bloomberg, Visible Alpha, June 2024. (From: Commodities update: Hard Knock Li-Fe, Macquarie Research, June 21, 2024)
In the longer term, Macquarie proposes new projects would add tonnes and “push the market into a surplus”. The main two projects the broker anticipates will have the greatest impact are Rio Tinto’s (ASX: RIO) Simandou project in West Africa (first production due next year), and Mineral Resources' (ASX: MIN) Onslow project (first production occurred last month).
Macquarie notes their 2025-2027 iron ore forecasts are now 8%, 14%, and 11% below consensus. Their long-term forecast of US$80/t is unchanged and is around 10-15% below consensus.
Contrasting this, and reflecting their short-term bullish view, their 2024 forecast of US$114/t for +2% above consensus and around 10% above the current iron ore price of US$103/t.
