The head of ANZ's commodities research has warned that Australia's big miners will have to accept that the price of iron ore could remain at present low levels for the next three to six months, dashing any hopes for a quick rebound.
But the price of gold is likely to return to its record nominal high of USD 1900 an ounce by the end of next year as global central banks extend their controversial bond buying programs in a bid to kick start economic activity. The falling price of iron ore has caused havoc for mid-tier miners in recent months, including Fortescue Metals.
Just weeks ago, the local market was shocked by news of major mining projects being scrapped or put on hold, as the iron ore price dropped from USD 110 to USD 86 a tonne on fears of a slowdown in Chinese demand.
Mr Mark Pervan, the head of ANZ's commodities research, said that the market was beginning to look more real after returning above USD 100 a tonne. He added that "Now it's not at the USD 120 to USD 130 that we saw three to four months ago because China now has an overhang in supply. But if we assume that China will probably muddle through for the next three to six months then it is likely to take that period before we see the iron ore and coal markets start to sustain better prices in the market."
ANZ's house view was that the trading range for iron ore had probably dropped by about USD 20 a tonne, from the USD 130 to USD 150 a tonne range that existed for the past year, to about USD 110 to USD 130 a tonne.
But there would likely be a medium-term floor under the price at around USD 100 to USD 120 a tonne, given the cost structure of domestic iron ore supply in China.
Mr Pervan said that "And this will be the catalyst to start to see a shutdown in some of the domestic supply in China. So we'll start to see a pull-back in supply that tightens the market up generally and puts a floor in the market around USD 110.''
The warning comes as the price of gold continues to climb to levels not seen since the beginning of the year as investors pile into the precious metal in the face of a money printing program by global central banks.
Mr Pervan said that "The key driver I think was the policy announcements we've seen recently. It's attracting investors this market still has upside in it; particularly if momentum continues you'll see increased investment from China."
He said he was forecasting gold to rise to just under USD 1900 an ounce by the end of next year.
Source - The Age
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