Top broker issues new warning on outlook for iron ore price

Three guys in shirts and ties give the thumbs down.Three guys in shirts and ties give the thumbs down.

One of the leading brokers, Goldman Sachs, has warned about what may happen next with the iron ore price.

According to Australian Financial Review and Bloomberg reporting, the broker thinks that problems in the Chinese property sector may mean bad news for the iron ore price.

Some of the biggest iron ore miners in the world are listed on the ASX, including BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG).

The iron ore price has been falling for a while already. Since early June 2022, the iron ore price has fallen by around US$40 per tonne.

Why could the iron ore price keep going lower?

According to the reporting, the broker thinks there will be a “significant surplus” of iron ore in the second half of the year, which could mean that the iron ore price gets pushed significantly lower.

How much of a surplus could the market see? Goldman thinks there will be an excess of 67 million tonnes for the rest of 2022, compared to a deficit of 56 million tonnes in the first half.

Goldman Sachs puts this down to both weakness in the Chinese real estate sector and a rapid decline in steel demand outside China. The real estate issue was partly caused by the government’s work on “excessive debt” in the sector, according to the broker.

Chinese mortgage holders are now reportedly withholding payments on unfinished housing.

Over the next three and six months, Goldman Sachs was previously expecting the iron ore price would reach US$90 per tonne and US$110 per tonne. However, the broker now expects this to be US$70 per tonne and US$85 per tonne. It’s currently around US$105 per tonne.

Goldman wrote that the Chinese real estate sector is responsible for around a third of China’s steel and iron ore demand. This represents around a quarter of global seaborne demand.

While this could hurt, the broker doesn’t think the iron ore price will be as bad as several years ago in 2014 and 2015, according to the reporting.

Iron ore mining share snapshot

Since 15 July 2022, the Fortescue Metals Group share price has gone up 14.5%.

Over that same time, the Rio Tinto share price has risen 6.1%.

The BHP share price has also gone up by around 6% since 15 July 2022.

Each of these businesses is due to hand in their results in reporting season over the next few weeks.

The post Top broker issues new warning on outlook for iron ore price appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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