From ANZ’s weekly look at commodity markets:
Despite a sharp fall in prices over the past month, we see the outlook for iron ore remaining relatively robust in the short term.
- Infrastructure spending continues to support steel and iron ore demand in China. Fixed asset investment in the sector is up 19.8% y/y in Jan-Aug. However, we also see a bright spot in the housing sector.
- The destocking phase looks like reaching an end in the not-too-distant future. In the past, this has been a precursor to an increase in construction activity.
- We also expect growth in supply to ease in coming months. In Australia, Roy Hill is close to its nameplate capacity of 55 million tonnes (mt). In Brazil, Vale’s drive to improve margins will result in its output falling by the equivalent of 19mt per year in H2 2017, despite its new S11D project ramping up.
- The recent sell-off has seen prices broach that key 90% percentile support level once again. Overall, we expect to see prices stabilise at current levels (of around USD60/t), before slowly pushing back toward USD70/t by year end.