Goldman Sachs has revised its iron ore price forecast up 18% from its previous forecast to $53/dmt CFR China for the third quarter, its analysts said in a research report released Thursday.
For Q4, the expected price was $43/dmt, up 8%, and for 2017 it stood at $36/dmt, up 3%. It is maintaining a 2018 forecast of $35/dmt.
The model now factors the impact of macroeconomic factors into their model as "the ferrous commodities have become the first target when investors speculate on macro scenarios," the analysts, Hui Shan, Amber Chai and Christian Lelong said.
Price volatility is an increasing theme for the iron ore market, because steel inventories remain thin, lacking a buffer for supply side price shocks, according to the report.
As a result, ferrous prices are increasingly subjected to macroeconomic factors, such as dollar fluctuations, movement in the Chinese yuan against the dollar, as well as micro factors such as iron ore port stocks and visible steel inventories.
Iron ore port stock supply is expected to swell over the course of 2016, from 28 days of use in Q2, to 30 days in Q3 and 35 days in Q4, a historical high, the bank said.
China is expected to import a high of 995 million mt iron ore 2016, before contracting to 962 million mt in 2017. Supply from imported seaborne iron ore is expected to be over 80% from 2016 on, indicating a displacement of domestic iron ore concentrate supply.
From January to June, China imported 494 million mt, customs data showed. Meanwhile, China's crude steel production is forecast to remain steady on year at 805 million mt in 2016, before falling to 776 million mt in 2017. The analysts also expect steel inventories to stay low until late Q4, when seasonal weakness in steel demand could boost inventories.
