ANZ: Here's why the iron ore rally won't last

Photo by Stanley Chou/Getty Images

The spot iron ore price has staged a spectacular recovery since hitting an all-time low of $44.59 on July 8, rallying 24% to $55.30 a tonne as of Wednesday evening.

While impressive, like many other analysts out there at present, Mark Pervan and Anurag Soin, commodity researchers at ANZ, believe that the current rally will not last, forecasting that the spot price will come under renewed pressure as a result of surging supply from Brazil.

“We believe the rally in iron ore prices was supported by supply disruptions in Brazil in August”, they note. “However, the recovery in freight rates in recent weeks suggests exports are likely to expand in October, which will negatively impact the prices in the coming months.”

“The Chinese steel industry is losing (on average) RMB200/tonne, or a very painful negative profit margin of 8%. We believe with continued pressure on steel mills that any upside in iron ore prices is limited.”

Year-to-date the price for benchmark 62% fines has already fallen $15.96, or 35.8%, according to pricing provided by Metal Bulletin.

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