Iron Ore: Feast before the famine – Deutsche Bank

Research Team at Deutsche Bank, suggests that Iron or prices are having a momentum into 2017, and they remain constructive for next year.

Key Quotes

“There is no doubt that current spot prices are unsustainable and have been driven by speculative trading on the Chinese exchanges. We expect a combination of higher trading fees and higher margins to take the froth off current prices. However the combination of a strong credit impulse boosting the property sector, along with a sharp pickup in infrastructure activity has meant that Chinese steel demand is likely to end 2016 up marginally positive as opposed to down single digit which was our expectation a year ago.”

“Our recent China field trip suggests that these drivers will continue into 2017, and hence we expect flat Chinese steel output once again in 2017. Although current prices are certainly well above incentive prices, there is a general reticence from the producers to respond quickly given the China “policy” uncertainty. Supply will ultimately be teased out of hiding, but this will take time, which supports our view that prices will be higher year on year for the various grades of coal, and at least flat year on year for iron ore.”