Global iron ore and coking coal prices are expected to fall 10 per cent and 12 per cent, respectively. |
Consultancy firm Goldman Sachs JBWere (GSJ) has recently forecast that iron ore and coking coal sold under term contracts will go on a downward spiral, adding that a downturn in the global steel market and increasing supplies will see prices decline from peak levels reached this year. |
According to GSJ, a 10 per cent decline in prices of iron ore fines sold under contract over the Japanese 2006-07 was likely. |
The report also said GSJ now expected the benchmark price for coking coal to be $110 per tonne, 12 per cent below the current benchmark. The previous forecast was for no change. |
It also forecast that seaborne iron ore trade in 2005 will be at 641 mt, based on a rise in Chinese imports by 23 per cent to 255 mt and a fall in trade with the rest of the world by 1.5 per cent to 386 mt. |
It also estimated that Australia and Brazil would supply at least an additional 15 mt each this year, leaving a shortfall of about 10 mt that needs to come from other suppliers to balance the market. |
Goldman Sachs said Indian exports to China rose by almost 40 per cent during the first four months of this year but the recent lack of activity in the spot market and decline in Indian spot prices suggest a slowdown in Indian shipments as the year progresses. |
"Our base case assumption is that the seaborne market will be closely balanced this year but will tend towards modest oversupply in 2006 as capacity expansions in Australia and Brazil reach fruition," it said. |
Goldman Sachs' analysis of iron ore capacity expansions implies a net addition to export supply of just over 50 mt a year between 2005 and 2007 which slightly exceeds its demand growth forecasts. |
The firm said the same demand issues apply to the coking coal market but it believes the seaborne market for hard coking coal will remain exceptionally tight for at least the next two years. |
Its revised price forecasts imply an annual average price of $108/ t for the three year period 2005-06 to 2007-08, which is 80 per cent above its long term price assumption of $60 and more than double the 10 year average price before this year's massive price rise. |