Why Goldman Sachs Expects Iron Ore Prices to Drop to $60

Why Goldman Sachs Expects Iron Ore Prices to Drop to $60 ## Resilient iron ore prices As we noted in Is the Party Over for Commodities as China Steel Feels the Heat? in November, iron ore prices started collapsing after Chinese steel mills’ margins gave way. In iron ore’s typical price pattern, prices once again started rising and increased ~11% in December. Prices have rallied back to over $70 per ton. ## Goldman Sachs says prices could drop to $60 According to Bloomberg, in a note released today, Goldman Sachs (GS) analysts, including Hui Shan, stated that while the industry’s fundamentals have improved, more supply is on the way, which should restrict the rise in prices. The bank expects iron ore prices to fall to $60 per ton in the next six months. Goldman’s analysts argue that $75 per ton for iron ore is not sustainable for two reasons: “First, part of the rally was fueled by mills restocking ahead of the Chinese New Year. Second, supply is set to increase in 2019.” ## Downside ahead for iron ore? Morgan Stanley (MS) also expects to see losses in the commodity (XME). On January 7, it said, “We’re iron ore bears from here, though, expecting falling crude steel output and growing seaborne supply to ultimately bring price back to the mid-low-$60s/ton.” Moreover, big miners such as Vale (VALE), BHP (BHP), and Rio Tinto (RIO) have been enjoying higher premiums on higher-grade ore due to China’s switch in a bid to control pollution. This switch was supported by higher margins. As margins have waned, it seems like the party might be over for iron ore miners, at least in the short term. The producers of metals such as copper (FCX) and aluminum (AA) have also been under pressure due to China’s muted demand outlook. You can read Why Iron Ore Is Bucking Falling Price Trends Unlike Other Metals for more on this topic.