Iron ore to suffer a sharp fall to end the year at $150/t – ANZ

Iron ore prices have surged to record highs as a confluence of factors has tightened the market. Subsequently, strategists at ANZ Bank have raised the short-term forecast to $215/t. Nevertheless, they expect the issues fueling iron ore to abate later this year.

Fear of missing out to support iron ore prices in the short term

“Strong construction activity has boosted steel demand. China has removed the export tax rebate for some steel product exports, which has likely led to some mills accelerating production before they came into effect. Moreover, the prospect of further restrictions on steel output and new capacity is driving steel prices to record highs. This is dragging iron ore prices with it.”

“The market is also viewing the indefinite suspension of the China-Australia Strategic Economic Dialogue as a potential threat to the iron ore trade between the two counties. While the likelihood of restrictions on Australian iron ore imports is low, it is likely to see some increased urgency in securing cargo.This should support the iron ore price. We have subsequently raised our short-term (less than three month) forecast to $215/t.”

“China is widely expected to gradually phase out stimulus measures, while April’s lower construction PMI suggests construction activity has already started to cool. This should weigh on steel demand and put steel and iron ore prices under pressure. We now expect spot prices to fall sharply in H2 2021, ending the year at $150/t.”