Iron Ore Forecast at $65 to $66 a Tonne in 2015

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--At the end of last week, as iron ore prices approached their lowest levels since 2009, iron ore for May delivery was down 1.8% at CNY479 ($72.70) a tonne on the Dalian Commodity Exchange (DCE) (China). On the Singapore Exchange, the February iron ore contract price fell 0.8% to $65.12 a tonne.

A commodity futures contract is an agreement to buy or sell a specific amount of a commodity at a fixed price on or before a certain date. Buyers use these contracts to avoid the risks associated with price fluctuations. The contracts are used by sellers to attempt to lock in prices for commodities.

Futures contracts give a strong indication of market sentiment and expectations regarding the future demand, supply and price for a particular commodity. The contracts reflect current market conditions in future prices.

The DCE iron ore forward curve is said to be in "backwardation." This occurs when futures contracts trade below the spot price and the futures curve begins to slope downward. The current indication is that the market expects a further decline in iron ore prices, based on current indicators and fundamentals. On January 23, Goldman Sachs (NYSE:GS) (New York) changed its 2015 forecast for iron ore to $66 a tonne from an earlier estimate of $80 a tonne.

Vale S.A. (NYSE:VALE) (Rio de Janeiro, Brazil), the world's largest iron-ore producer, had its credit rating cut by Standard & Poor's (S&P) (New York) for the first time in eight years to BBB+, which will hamper the company's ability to generate cash. S&P forecasted iron at $65 a tonne in 2015 and 2016, and $70 in 2017.

For related information, see January 20, 2015, article - 'Big Three' Iron Ore Miners Consolidate Chinese Import Market, Squeeze Higher-Cost Producers and January 7, 2015, article - EY: More Pain Ahead for Metals and Mining before Recovery in Price, Productivity.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.