JB Were warns in a note today that rising iron ore production in China could lead to prices falling faster than anticipated.
Softening commodity prices, along with the strong Aussie dollar, have been one of the key drivers of lower-than-expected tax revenues in Australia.
Under the frank heading “Iron Ore: The end is nigh-er than we thought”, the wealth manager notes in Australian Equities Daily that GS Global ECS research had reduced its price forecasts and “now believes the period of oversupply will occur sooner than previously anticipated.”
The note continues: “The key drivers are: (1) increasing scrap usage in China; (2) Chinese production to surprise on the upside; and (3) lower steel production. The result is a market surplus from 2014, driving prices towards the marginal cost of seaborne supply.”
JB Were says it continues to prefer BHP over Rio among the big miners, partly because of BHP’s lower exposure to iron ore.
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