Iron Ore Outlook Cut Back by Morgan Stanley Over Rest of Year

(Bloomberg) -- Iron ore forecasts at Morgan Stanley have been chopped back for the remainder of the year, with the bank flagging prospects for rising low-cost production and the likelihood that the worldwide surplus will increase every year through to 2021.

The commodity will average $50 a ton in the third quarter, 23 percent down from an earlier estimate, and $55 in the final three months, a 15 percent reduction, according to a report. The 2017 forecast was pared 15 percent to $63, while the outlooks for next year and 2019 were left at $58 and $54.

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After the commodity’s second-quarter retreat, “all market signals suggest trade stability at this level,” analysts including Tom Price said in the note, which was received on Tuesday. The bank, which listed iron ore among metals on which it’s neutral, said Vale SA’s ramp up of new mine S11D in Brazil is behind a surplus, capping spot prices, despite robust or stable demand.

Iron ore prices that peaked near $95 in mid-February have sunk since then amid rising supplies from producers including Brazil’s Vale, and as China’s moves to clamp down on leverage helped to quell speculative trading. On Monday, BHP Billiton Ltd., the world’s largest mining company, also highlighted new supply now flowing out of Brazil, predicting a drop in market volatility.

“We forecast an expanding surplus for seaborne trade, but a flat price of $55 to $60 expecting the majors to under-deliver on our forecast supply growth,” Morgan Stanley said. The seaborne glut is seen rising from 34 million tons this year to 81 million in 2018, and reaching 185 million by 2021.

Ore with 62 percent content delivered to Qingdao jumped 5.2 percent to $59.70 a dry ton on Tuesday, paring a quarterly decline, according to Metal Bulletin Ltd. The increase was preceded by a gain in futures, with the SGX AsiaClear contract in Singapore advancing 6.4 percent.

Boost Exports

Vale began commercial shipments from S11D in the first quarter, with the ramp-up to 90 million tons of capacity being spread over four years. That’ll help boost exports from the miner to 361 million tons at the end of the decade from an estimated 319 million this year, according to Morgan Stanley.

The view from Morgan Stanley compares with the outlook from Citigroup Inc., which sees prices at $51 in the third quarter and $48 in the final three months after cutting its forecasts earlier this month. Citigroup puts the surplus at 118 million tons in 2017, up from more than 60 million tons last year.

To contact the reporter on this story: Jasmine Ng in Singapore at jng299@bloomberg.net.

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Jake Lloyd-Smith, James Poole