UPGRADE: Macquarie Bank sees iron ore and coal prices remaining strong well into next year

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Macquarie Bank has made some significant upgrades to its iron ore price forecasts, suggesting that recent strength is likely to persist into early 2018.

“The biggest discernible change in fortunes for commodities has been a lifting in investor sentiment towards Chinese demand, with the strong June macroeconomic prints — including the third-highest ever loans data — having presented a more robust picture of activity for the second half of 2017,” it says.

“After resurgent strength in commodities prices, particularly amongst the bulks, we upgrade our forecasts.”

Here’s the bank’s updated iron ore forecasts.

Source: Macquarie Bank

Macquarie now sees the benchmark spot price for 62% fines averaging $73 a tonne in the first quarter of next year, representing a massive 46% upgrade on its previous forecast for $50 a tonne.

Although it sees the benchmark price edging lower over the course of the year, it doesn’t expect prices to fall as much as its prior forecasts.

Macquarie also upgraded its forecast for 58% fines, now seeing it averaging $58 a tonne in the first three months of 2018, up 44% on its previous estimate.

“Our prior forecasts assumed a more rapid closing of the discount for low grade iron-ore as the fall in benchmark prices was expected to be driven by both increased high grade supply and declining steel demand,” it said.

“However, with the outlook for steel bullish for at least the next six to nine months, we have assumed the discounts for lower grade ore close more slowly than previously anticipated.”

The current benchmark spot price sits at $76.08 a tonne, according to Metal Bulletin. 58% fines are trading at $49.41 a tonne.

In line with its upgraded iron ore price forecasts, Macquarie also sees coking coal prices — another key input in the steel production prices — remaining at elevated levels for longer than what it previously estimated.

Source: Macquarie Bank

It’s near-term hard coking coal price forecasts have been increased by 32% and 40% respectively to $185 a tonne and $175 a tonne for the first and second quarters of next year, something that it says reflects Chinese re-stocking demand and tight coking coal supply.

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