Iron ore prices over the next several weeks may stabilize around the $130-140/dmt CFR China range after recovering from a recent price correction on improving steel demand, Deutsche Bank said.
The bank's analysts expect buying to come in from China as a restocking of steel-reliant goods supports prices, with a drop into mid-summer to the $110/dmt level.
"Opportunistic buying from Chinese mills is to be expected following a price correction, furthermore we are hearing reports that some re-stocking of manufactured goods (air-conditioners, washing machines, etc.) is taking place in China," the bank said in a quarterly report.
"This and reasonably low iron ore inventories at Chinese ports could support prices for a time in our view," wrote analysts led by Daniel Brebner.
Chinese mills are maintaining high levels of steel production, helping ensure demand, according to industry sources in the country. Platts assessed the 62% Fe Iron Ore Index up $1.25/dmt to $139.50/dry mt CFR North China Tuesday.
Deutsche Bank says prices could temporarily fall below $100/dmt CFR again later this year, as seen around the same period of 2012 at the end of the third quarter. It highlighted decelerating steel consumption growth to end up near a 1-3% rate from the 17% average of the past decade.
It puts marginal costs for small Chinese iron ore mines around $110/dmt CFR equivalent level, with a stronger yuan currently pushing up costs further.
"Effectively, China is approaching a maximum in terms of consumption intensity for steel. In addition to this challenge however, we also see the growth in steel scrap production in China and the development of Electric Arc Furnace steel capacity."
The bank sees EAF steelmaking which uses scrap as becoming important by 2017, increasing the proportion of scrap in crude steel production, which is currently dominated by blast furnaces.
Coking coal prices may similarly stay supported in the shorter term, and decline in the summer, Deutsche Bank said.
"We expect any price strength will likely be short-lived, with seasonal weakness anticipated by May in addition to a possible flattening of growth in China as the government continues to focus on mitigating inflationary threats within the country and counters bubble-like tendencies in certain asset classes such as real-estate," the report said of coking coal.
The bank said prices may recover by the end of 2013, forecasting Q4 contracts at $175/mt FOB Australia.
Source: Platts