The iron ore price has edged higher despite another projection that the commodity could fall sharply over the second half of the year and remain at depressed levels until 2020.
Iron ore rose 1 per cent to $US50.70 a tonne in the most recent session, according to The Steel Index.
Credit Suisse analysts have joined the latest chorus of commentators predicting the price will head lower as the market remains well oversupplied.
The bank reaffirmed its forecast that prices fall to $US40 a tonne in the second half of calendar 2016, holding at that level until the end of 2020.
But the analysts also repeated an earlier call that there is upside to the forecasts, given Chinese plans for massive infrastructure stimulus that could boost steel demand.
“The summer slowdown in steel demand is approaching, which together with tight cash flow is likely to keep iron ore demand subdued until mid-August,” Credit Suisse research published last week said.
“However, we expect stronger steel demand in the December quarter for the infrastructure stimulus that China unleashed early in the year. The stronger real demand and improved property outlook is positive for iron ore and steel production trends.”
Credit Suisse expects to see surplus iron ore production of around 200 million tonnes in 2018, but suggests that much of this is price-insensitive output from state-backed Chinese producers.
“Given this assumption, to balance the market we’d need to see much of the iron production that sits above FMG [on the cost curve] and below the China producers squeezed out,” the bank said.
“Hence, our house view that iron ore prices can fall to $US40 a tonne and hold this level for an extended period. Supply adjustments always take longer than anticipated.”
The call follows a string of bearish forecasts in recent weeks. Citi is tipping a price of $US42 in 2017, while NAB expects a fall to $US40 next year.
Macquarie expects an average price of $US52 a tonne in the September quarter and $US48 in the December quarter, but says the volatile commodity could still touch $US40 this year.
In London trade, BHP Billiton shares rose 3 per cent, while Rio Tinto added 2.6 per cent as the broader market rebounded on hopes a British exit from the EU looked less likely.
Source: The Australian