Iron ore prices of just under $120/mt are likely to stay flat in the medium term, with some softening expected in the short term, a Sanlam Securities' mining analyst said Wednesday.
"There's going to be volatility in the iron ore price as always by destocking and restocking in China as well as impacts from macroeconomic changes globally," Charlie Long said on the sidelines of the West Africa Mining Investment Summit in London.
Sentiment is still on a downwards trend due to China's recent slowdown, which Long expects will remain. However, he noted that China's demand for seaborne iron ore will continue to grow as high cost domestic production continues to be shut.
"As new iron ore supply comes into the market it will put more pressure on Chinese domestic production," he said.
There has been shutdowns of small-scale steel mills in China and domestic iron ore prices softening amid an environment of regional governments holding high debts, Long said.
"So there is risk that China could have a structural slowdown, and any investment in iron ore, particularly in West Africa, does hold some risk," he said.
A slowdown in China's urbanization growth rates and development of commercial and residential property is also occurring. Although there has been growth in the white goods and automotive sectors, which require steel, Long said.
"We're also seeing more replacement and maintenance of machinery and residential property, which signals the economy is no longer building at the same rate," he said.
In terms of oversupply risks in global iron ore markets, CRU's Serafino Capoferri, also on the conference sidelines, may already be in effect now as prices have softened and port stocks in China remain high.
An additional 60 million mt of iron ore is expected to come into seaborne markets in 2014 and another 50 million mt in both 2015 and 2016, with most of this coming from Australia and smaller amounts from Brazil, Long said.
Supply from West Africa was over 30 million mt in 2013. However, Long was skeptical that West African iron ore would impact seaborne supply over the next five years.
"Most West African iron ore relies on Chinese funding of infrastructure and still needs government support," he said. "So a lot of the mines in this region won't get up in the near term if at all for some time, so they're unlikely to be a player in the seaborne market
Both analysts expected there will be an oversupply of iron ore in the seaborne market over the medium term, and Long forecasted the iron ore price will soften to around $109/mt by 2015.
Capoferri said longer term the price will decline even further to be under $100/mt by 2018.
