Goldman Sachs warns of continued downside risk

Goldman Sachs Group released its latest report, saying that due to supply far exceeding market demand, this year's decline in iron ore prices is much earlier than expected and is unlikely to recover, which means that 2014 will be the end of the so-called “Black Iron Age”. Iron ore has entered the “opening period” that usually marks the commodity bear market.

So far this year, iron ore prices have fallen by 38% to $84 per ton, making it one of the worst performing commodities. As of the close on the 10th, the world’s top three miners Vale, Rio Tinto and BHP Billiton’s share price fell by 19%, 7% and 3.4% respectively during the year.

Goldman Sachs analyst wrote in the report entitled “The End of the Black Iron Age”: “2014 was a turning point in the global iron ore industry. New production capacity eventually caught up with the growth in demand, and profit margins began to approach history. "Low." The report will reduce the price of seaborne iron ore for 2016 from the previous $82 per ton to $79 per ton, and the outlook for 2017 will also drop from $85 per ton to $78 per ton. However, Goldman Sachs maintained its forecast of this year's iron ore price target of 80 US dollars per ton.

Goldman Sachs pointed out: "In our view, iron ore has entered the mining period. During the mining period, commodity prices are usually weighed down by two factors. One is the deflationary power generated by the rise in mining productivity, and the other is the commodity currency. Devaluation."

According to the report, since the world’s largest iron ore suppliers, including Rio Tinto, have significantly increased their low-cost production, they hope to offset the price drop with higher output, and at the same time close down the under-competitive mines. In 2014 it entered a bear market. Among them, iron ore prices fell earlier than expected, and it is expected that by November, iron ore prices may fall by 15% during the year.

Goldman Sachs believes that as the excess iron ore status becomes more serious, the decline in China’s output and rising inventories will not be enough to balance the market. The report said: "The decline in iron ore prices is very large, but China's demand outlook remains weak. The structural nature of the oversupply makes it unlikely that a recovery in the industry will occur. Lower iron ore prices are also unlikely to be greatly stimulated. demand."

Goldman Sachs estimates that the global supply of excess iron ore will increase to 163 million tons in 2015, 245 million tons in 2016, and 295 million tons and 334 million tons in 2017 and 2018 respectively. In addition to being absorbed through rising inventories, some second-tier overseas iron ore producers may be forced to cut production. Goldman Sachs predicts that these iron ore producers may cut up to 40 million tons annually in 2015 and 2016.