A new report from HSBC has predicted the price of iron ore may return to below US$40 a tonne this calendar year, with a global oversupply set to impact the major commodity sooner, rather than later.
HSBC’s forecast, reported by Business Insider this week, would be bad news for ASX-listed mining majors Rio Tinto, BHP Billiton, and Fortescue Metals Group, which has seen its share price more than double as the iron ore price has rebounded over the last six months.
BI spoke with HSBC’s head of Europe, the Middle East and Africa metals and mining, David Pleming, who reportedly said after some strength in iron ore in the first quarter of 2017, the rally “will give up its gains as we progress through the year”.
“We believe the iron ore price will gradually correct itself through the course of 2017,” Pleming was quoted as saying.
“However, Q1 being the seasonally strong period for iron ore, due to weather-related supply disruptions from the two major exporters (Australia and Brazil), the price momentum might be maintained in Q1.”
Beyond that, however, Pleming says HSBC has a long-term forecast for iron ore to drop to US$52 a tonne, from its current price around US$80.
A subsequent Fairfax report has cited an HSBC forecast which predicts prices may dip as low as US$39 a tonne this year, before bouncing back to the long term mark around US$50.
“Significant iron ore supply growth is expected to come on stream over the next two years,” Pleming reportedly explained.
Roy Hill, Rio’s 360mtpa growth project, and BHP Billiton’s 290mtpa targets were the major Australian offenders for this.
Vale and Anglo were also highlighted by Pleming as sources of supply growth.
While that is happening, he reportedly said, HSBC is expecting demand supplies from China of 33 million tonnes in FY17 and 44 million tonnes in FY18.