Chance of iron ore falling to $US80/t ‘not too far from current reality’: CBA

Australia’s biggest bank has warned the prospect of iron ore falling below $US80 a tonne is “not too far from current reality”.

Iron ore futures dipped a further 0.3 per cent to $US91.94 a tonne on Monday after Goldman Sachs cut its iron ore price forecast for the fourth quarter by $US15 to $US85/t, citing market oversupply.

Prices last week sank to under $US90/t — their lowest level in almost two years as China’s steel slowdown leaves the market awash with too much of the raw material.

“The risk that iron ore prices fall to $US80 a tonne is not too far from current reality, and a level reached as recently as the fourth quarter of 2022,” said Commonwealth Bank resources analyst Vivek Dhar, according to the Australian Financial Review.

Prices have slumped by about a third this year, fuelling talk about how low they must go to force mine closures and bring supply back in line with demand.

Commonwealth Bank said the price may need to sink well below $US90/t to force more producers in India to scale back output and cut stockpiles at Chinese ports.

Goldman Sachs said global supply — much of which comes from Pilbara’s powerhouse operations run by the likes of BHP, Rio Tinto and Fortescue — was 2 per cent higher than this time last year.

“We believe that another leg lower in prices … would be needed to completely remove new Indian tonnes from the seaborne market and pressure supply further down the cost curve to rebalance fundamentals,” said Goldman analyst Aurelia Waltham, according to the AFR.

Chinese steelmaking giant Baowu recently warned of a “severe winter” for China’s steelmakers as a domestic property bubble bursts.

CBA said despite the Peoples Bank of China guiding mortgage interest rates down in the past two years to revive demand for property, households’ home-buying intentions have continued to fall to low levels.

Property prices in the Middle Kingdom have declined every month for more than a year through to August 2024. Prices have now fallen by about 8 per cent in the new market and about 14 per cent in the established market since their peaks in mid-2021.

“Weak property sales have put a strain on property developers’ credit conditions and therefore their ability to build new properties,” CBA analyst said.

“Floor space starts, the most important indicator for steel and iron ore demand, contracted deeply by about 17 per cent a year in August 2024.”

But RBC Capital analysts remain outliers in their iron ore forecast, tipping the price of the steel-making ingredient to recover and climb back over $US100/t toward the end of the year before retreating out to 2026.

“Seasonal construction demand, government funded infrastructure projects along with seasonal restocking ... are expected to support demand in 4Q,” they said.

“Nevertheless, given the elevated port stockpiles, rising seaborne supply and subdued property market are expected to cap iron ore prices. We have left our CY25/26 prices at $US95 and $US80/t, so too our long-term price at $US75/t.