By Carolina Curiel (ScrapMonster Author)
December 17, 2015 07:41:51 AM
CANBERRA (Scrap Monster): The recent research report published by Goldman Sachs states that a rebound in iron ore prices is unlikely to happen at least during the next three years. According to them, the raw materials prices have hit $40 per tonne one year ahead of their schedule. The report by analysts Christian Lelong and Amber Cai sees the average prices in 2016 at $38 per tonne. Furthermore, the prices are likely to fall further to $35 per tonne during 2017 and 2018.
According to the report, the downgrade in iron ore prices in mainly on account of slowdown in Chinese economic growth. The Chinese steel stocks continue to remain at exceedingly high level. In addition, the country’s steel production is expected to drop to 806 million tonnes this year. By 2040, the Chinese iron ore demand is likely to drop by 50% from 2015 levels primarily due to lower steel consumption and higher recycling rates. The deterioration in Chinese steel industry is likely to accelerate the pace of mine closures in 2016, with a handful of miners with negative cash flow unlikely to secure alternative sources of funding to sustain their mining operations.
"The iron ore sector may have to hibernate for an extended period before alternative steel markets in other regions take over from China and usher in the next bull market," the analysts wrote.
Iron ore has not faced excessive competition from scrap in Chinese steel sector, due to sharp plunge in raw materials prices during the year. The iron ore prices have nosedived by almost 40% since the start of the current year. However, scrap supply has marked steady growth over the year. The share of steel recycling is expected to rise to 47% by 2040, when matched with the current level of 11%.