Iron ore spot prices, trading at a 21-month high, may fall 30 per cent in the coming weeks on concern that China is taking steps to slow the pace of economic growth, UBS AG said.
Cash prices for 63 per cent iron ore into China, the biggest buyer from India, may drop to $130 a tonne, including freight, UBS Sydney-based analyst Tom Price said yesterday. The ore traded at $186 on April 16, the highest since July 25, 2008, according to prices from Metal Bulletin.
Prices have risen 38 per cent this year as Chinese steelmakers including Baoshan Iron & Steel Co are increasing purchases to feed furnaces and fulfill order books. This month China moved to cool its real estate market to slow the fastest economic growth in almost three years.
“Iron ore’s various high and rising spot signals are now threatened by a range of bear factors, including a growing expectation that China’s government will move more aggressively to curb economic activity,” Price said. New policies targeting iron ore price speculation and rising steelmaker costs may also cause prices to decline, he said.
Fortescue Metals Group, Australia’s third-largest iron ore exporter, and Gindalbie Metals are among producers whose shares may drop, presenting a buying opportunity for investors as the “correction” will be short term, he said.
Fortescue Metals this week said shipments jumped 53 per cent in the three months ended March because of Chinese demand. Chinese steel production will reach 640 million tonnes (mt) this year, said Graeme Train, an analyst at Macquarie Group. That is up from the record 568 mt in 2009.
Along with stronger demand from other countries, iron ore prices will stay above $120 a tonne this year, Train said. Exports from India will also be lower in the second and third quarters because of the impact from seasonal weather patterns, he said.