Morgan Stanley cuts 2017 outlook

Iron-ore price forecasts at Morgan Stanley have been chopped back for the rest of the year, with the bank flagging prospects for rising lowcost production and the likelihood that the worldwide surplus will increase every year to end-2021.

Morgan Stanley’s iron-ore price forecasts have been chopped back for the rest of the year.

The bank is flagging prospects for rising low-cost production and the likelihood of the worldwide surplus rising yearly until the end of 2021.

The commodity would average $50 a tonne in the third quarter, 23% down from an earlier estimate and $55 in the final three months, a 15% reduction, said a report.

The 2017 forecast was pared 15% to $63, while the expectations for 2018 and 2019 were left at $58 and $54.

After the second-quarter retreat of the commodity, “all market signals suggest trade stability at this level”, analysts including Tom Price said in the note, which was received on Tuesday.

The bank, which listed iron ore among metals on which it is neutral, said Vale’s ramp-up of new mine S11D in Brazil was behind a surplus, capping spot prices, despite robust or stable demand.

Iron-ore prices peaked near $95 in mid-February and then sank with rises in supplies from producers, including Brazil’s Vale, and as China’s moves to clamp down on leverage helped to quell speculative trading.

On Monday, BHP also highlighted new supply now flowing out of Brazil, predicting a drop in market volatility.

“We forecast an expanding surplus for seaborne trade, but a flat price of $55 to $60 expecting the majors to underdeliver on our forecast supply growth,” Morgan Stanley said.

The seaborne glut is expected to rise from 34-million tonnes in 2017 to 81-million in 2018 and reach 185-million by 2021.

Ore with 62% content delivered to Qingdao was at $56.75 a tonne on Friday, according to Metal Bulletin. The commodity has lost 29% since the end of March and is on course for the biggest quarterly loss since the global financial crisis in 2008.

Futures gained in Asia on Tuesday, with the SGX AsiaClear contract in Singapore advancing as much as 5.5%.

Vale began shipments from S11D in the first quarter, with the ramp-up to 90-million tonnes being spread over four years. That would help boost exports to 361-million tonnes at the end of the decade from an estimated 319-million in 2017, said Morgan Stanley.