Citigroup cuts long-term iron ore price forecast; sees shrinking demand

27th May 2015 09:33

Citigroup downgraded its long-run benchmark iron price forecast to $55 a metric tonne from $81 on Wednesday, pointing to declining demand, lower costs and cheap expansions.Citi said it expects global demand to contract from 2018 to 2025, led by top-consumer China, while low-cost output rises."Perhaps the greatest structural challenge facing the iron ore market is the rolling over of Chinese iron ore demand, driven by declining domestic steel demand and rising scrap availability. As a result, despite growth from other emerging markets, we forecast a decline in global iron ore demand over the 2020s," said Citi.The bank expects global demand to drop by more than 60 million tonnes between 2018 and 2015, driven by China.Citigroup pointed out that costs in the iron ore industry are falling across the board, partly as a reflection of the capex cycle and lower prices, with companies economising and demand for contractors and machinery declining.As far cheap expansions are concerned, Citi said Rio Tinto and BHP Billiton - the world's lowest cost producers - possess significant expansion capabilities, with potential to boost output to a combined 900 million tonnes or more by 2025, which is about 70% of global import demand.Citi maintained its bearish short and medium-term outlook, forecasting price to average around $40 a tonne over 2016-2018.