Analysts queue up to downgrade iron ore forecasts

Turmoil in the iron ore markets sent analysts scurrying to downgrade their respective forecasts on Monday.

The iron ore price has been declining for close to 12 months on concerns about oversupply and lacklustre demand from China. Spot prices slumped below $50 per tonne earlier this month dropping 1.7% to $47.53 per tonne on 10 April.

Given ongoing cost deflation, producer FX tailwinds, loss tolerance and closure costs - amongst other factors - UBS slashed its long-term 2020 price forecast by 27% to $55 per dry metric tonne. The Swiss broker also cut its 2015-19 iron ore forecasts by 20-30% to $48-55 per tonne and the long-term price by $20 per tonne to $55.

Ratings agency S&P lowered its price assumptions for iron ore to $45 per tonne for the rest of 2015, to $50 for 2016 and $55 for 2017. Meanwhile, analysts at Citigroup cut their short and medium-term outlook for the price of the red metal, which they now expect to average $45 per tonne in 2015 and $40 per tonne in 2016, staying at that level until the end of 2018.

Those projections were in sharp contrast with Citi’s previous forecasts of $58, $62 and $73 for 2015, 2016 and 2017, respectively. Last week, Credit Suisse said it expected the iron ore price to average $45 per tonne in the second half of 2015 and the first two quarters of 2016.

Earlier this year, Deutsche Bank predicted a sub-$40 level before the price finds a floor. The flurry of recent downgrades hit mining stocks hard on Monday. At 15:40 BST RioTinto (down 0.78%), BHP Billiton (down 3.21%), Lonmin (down 3.23%), Antofagasta (down 2.50%) and Anglo American down (2.33%) were all in the red.

Following the lowering of their iron ore forecast, analysts at Citi noted: “On the large cap stocks we have moved to a ‘neutral’ recommendation on BHP Billiton, Glencore and Rio Tinto, and we move to a ‘sell’ recommendation on Anglo American and Vedanta.”

Citi analysts also downgraded Gem Diamonds and Lonmin to ‘neutral’.

In parallel, S&P placed its rated mining companies – i.e. Anglo American, BHP Billiton, Rio Tinto, Fortescue Metals Group, Vale, Exxaro Resources and CAP – on ratings watch with a negative outlook.