The raw material has stormed higher since mid-June as China reforms its massive steel industry, including shuttering less efficient plants, analyst Paul Hissey said in a Bloomberg Television interview yesterday.
That’s bolstered demand for output from remaining producers, supporting mills’ margins.
Iron ore has see-sawed this year, rallying to almost $95 a tonne in February before tumbling to near $50 in mid-June as glut fears resurfaced.
Now it’s rebounded again amid China’s steel boom, and RBC’s outlook for a sustained run above $70 counters views for a sell-off, including from Barclays.
RBC placed joint-third, along with Citigroup Inc, in predicting prices in the second quarter, according to data compiled by Bloomberg.
“It’s holding up quite well and we’d expect it to sort of maintain these $70-plus levels now for the remainder of the year,” said Hissey.
After a “rocky start” to 2017, “I’d expect from this point forward we’ll have consensus upgrades coming through the street,” he said.
Spot ore with 62% content delivered to Qingdao rose 2.4% to $79.81 a dry tonne yesterday, the highest level since April, according to Metal Bulletin.
Prices, which have gained for six straight weeks in the longest winning streak since 2010, have averaged about $73 so far this year, benefiting miners including Rio Tinto Group, BHP Billiton and Vale SA.
There are still plenty of bears out there. The commodity may see its gains unravel over the second half as steel production in China eases back from a record pace just as global miners pump up volumes, according to Capital Economics, which came out top among forecasters in the second quarter.
Barclays has said it sees an average of $50 by the fourth quarter.
Goldman Sachs Group is among banks that have recently upgraded their price forecasts for iron ore. Last month, the bank boosted its three-month outlook 27% to $70 a tonne, while sticking with a bearish view for 2018 amid rising mine supplies. UBS Group AG said prices in the $70s aren’t likely to last beyond the third quarter as construction activity in China is set to ease while supply increases, according to a report received yesterday.
Some miners are also cautious on the outlook for prices. Fortescue Metals Group – which reported earnings yesterday – said it expects benchmark ore will probably slump back to $55 to $65 a tonne.
The driver may be a reversal of mills’ preferences back toward lower-quality ore to cut costs, according to chief executive officer Nev Power.
“As steel mills become more focused on minimising their cost of production, we think the iron ore price will come back to historical levels,” Power said in an interview.
At present, because of the closure of a lot of illegal steel production in China, extra demand has gone to the big integrated steel mills, favouring higher-grade material, according to Power.
