JPMorgan Cuts Iron Ore Price Forecasts Over Next Five Years

MELBOURNE -(Dow Jones)- JPMorgan Chase & Co.'s (JPM) has trimmed its forecasts for iron ore prices by 10%-15% for the next five years in response to lower expected demand for the steelmaking commodity.

"We believe that high cost Chinese production will keep its place in the market and support prices at above normal levels for some time," the company said in a research report published Tuesday. "However, we have lowered our demand projections in line with our global economists' estimates of world growth and this results in lower price forecasts."

China is the world's largest consumer of both steel and iron ore. Australia supplies roughly 40% of the world's iron ore traded by sea, and companies led by Rio Tinto PLC (RIO) and BHP Billiton Ltd. (BHP) are investing billions of dollars to expand their production capacity in the country's remote Pilbara region.

"The supply-side remains supportive, and supply disruptions and continued delays in projects by the junior miners make us confident that the iron ore prices are here to stay relatively high for a few years," JPMorgan said.

It said it had cut its price forecast for this year 6% to an average US$167.40 a ton, and by 16% for 2012 to US$147.50/ton. Its forecast for 2013 was lowered 14% to US$150/ton, and for 2014 it was cut 11% to US$125/ton and for 2015 it was cut 13% to US$105/ton.

Spot prices for the commodity have swung wildly in recent weeks, declining more than 30% over three weeks and then recovering about 26% from the bottom of US$116.90/ton, JPMorgan said.

"Going forward, the recovery and the sustainability of iron ore prices will depend on the strength of recovery in demand from Chinese steel mills, a potential recovery in European steel demand and an overall improvement in the general macro-economic sentiment," it said in its report.