Iron-ore prices “set for a massive fall this year” - HSBC

HSBC’s equities metals and mining team notes that the iron-ore prices are expected decline significantly in the months, despite more-than 17% rally seen so far this year.

Key Quotes via Business Insider:

“We believe that these factors will eventually fade however due to the lack of fundamental support.”

“While some of the more speculative noise will likely abate, the key fundamentals remain weak and we believe that relatively strong supply growth will ultimately drive prices lower as demand growth fails to absorb additional volumes.”

And it’s not going to be a small, steady pullback, suggesting that prices are “set for a massive fall this year.”

“The longer prices remain elevated, the greater the likelihood that marginal supply will be added to the market.”

“While demand remains largely stable, supply will increase considerably from here into 2H17. Seasonally stronger supply — mainly from Australia, Brazil and China — is likely to result in 39 million tonnes (mt) of additional supply in 2Q17 compared to the current quarter and another 26mt in 2H17. Similarly, we see an additional 68mt of supply from majors and 20mt output from the restart of mines in India.”

“This could add around 30mt of quarterly supply by 4Q17 and drive a 10mt quarter-on-quarter increase in Q2 alone. On an overall basis, this will increase the supply by 40mt in 2Q17 and therefore, shift the market balance from a 10mt deficit in 1Q17 to 30mt surplus in 2Q17.”