McKinsey & Co: Recent rally to erode; iron ore likely to snap back to $45 per ton

By Paul Ploumis (ScrapMonster Author)

April 12, 2016 05:17:27 AM

ALBANY (Scrap Monster): McKinsey & Co.-the global management consulting firm predicts erosion of the recent rally in iron ore prices. The steel making commodity is likely to head back to $45 per ton.

According to McKinsey, iron ore prices witnessed strong rally during the first quarter of the current year, taking the prices to as high as $63.74 per ton. The surprise rally was mainly on the back of speculations of huge demand growth in China- the largest consumer market. However, China is yet to report major improvement in steel consumption. The construction demand in the country is not expected to rebound soon.

McKinsey, in line with other major banks including Goldman Sachs, believes that iron ore prices are likely to remain bearish. There is little reason to believe that iron ore prices may go above $45-$50 per ton. Sinking Chinese steel demand and abundant supplies offers more downside risks for the commodity in the near term. Incidentally, Goldman Sachs too had lowered the iron ore price forecast to $35 per ton for the year. Citigroup too predicts the prices to average around $38 per ton during 2016 and $35 per ton during 2017 and 2018.

Recently, Angang Steel Co.- one of the top steel producers in China has warned that global steel industry is engulfed by a severe crisis. The company had stated that the domestic and overseas steel industry has entered into an ‘Ice Age’. According to McKinsey & Co., the statement by the country’s fourth largest steel producer is a clear indication of the industry trend. It believes that steel consumption growth is yet to witness fundamental improvement, as uncertainties still exists in the country’s construction and real estate sector revival.

McKinsey & Company, headquartered in New York, is a global management consulting firm that serves leading businesses, governments, non-governmental organizations, and not-for-profits. It conducts qualitative and quantitative analysis in order to evaluate management decisions across the public and private sectors.