Rally at risk: Why Goldman Sachs is cautious against recent iron ore gains
In a comeback, iron ore prices rallied past the $70 threshold, although banks like Morgan Stanley are warning that it definitely won’t last.
Like any other commodity available in today’s investing market, iron ore is subject to price volatility, especially now that market conditions are more unpredictable than ever, driven by a muddled-up trade war, an economy that moves on its own, and a political climate that hangs like an uncertain blanket.
This market condition took another sharp turn last month, bringing in a sudden rally that brought benchmark material into the $70 territory. And while this may sound good for the untrained ear, it’s actually not, as it easily puts itself at risks as banks like Morgan Stanley and Goldman Sachs Groups Inc. both think of the same thing: Prices will drop back sooner or later, and there’s no way this increase can carry itself for a long time.
In fact, according to Goldman analysts, like Hui Shan, while conditions in the industry have definitely improved, the current prices definitely won’t last, as more supplies are on the way. Furthermore, the banks expect a decline in the next six months that goes as low as $60.
According to the same analysts from Goldman, “The $75 a ton iron ore price is not sustainable for two reasons. First, part of the rally was fueled by mills restocking ahead of the Chinese New Year. Second, supply is set to increase in 2019.”
Back in November last year, a sell-off driven by declining mill margins posed as a momentary slowdown for the metal. However, it soon staged a comeback by pushing benchmark prices at around 11 percent back in the following month. It’s easily the biggest monthly gain in more than a year’s time, and iron ore was able to maintain that same price up until the new year in spite of clear signs of slowing growth observed in China. Coincidentally, China is also its top user, a country with a political climate so unpredictable that it caused a flurry of ups and downs in various sectors in 2018.
Rally at risk
According to data provided by Bloomberg, Monday saw spot ore (with 62 percent iron content) go up as high as $74.70, which is easily the highest it reached since November last year. It then managed to snag another weekly gain since Friday and has stabilized at $74.70 for the time being.
However, although the keyword “stabilize” may warrant more than a few sighs of relief, the wave isn’t over yet, as Morgan Stanley also saw losses. In a note released last week right after the gains, the bank stated, “We’re iron ore bears from here, though, expecting falling crude steel output and growing seaborne supply to ultimately bring price back to the mid-low-$60s/ton.”
This expected price drop may burn a hole through some pockets, although some companies, like Macquarie Wealth Management, believe there’s still some juice left in it, and choose to look at the brighter side of things. Considering how unpredictable its market is, that statement might just be true, but only for those who choose to see it through the end instead of jumping ship at the first sign of volatility.
At the end of the day, investments come with their own set of losses and wins, and iron ore is no different.
(Featured image by DepositPhotos)
Concrete Investing Launches €4.75 Million Crowdfunding Campaign
Concrete Investing has financed 24 real estate transactions to date in four years of activity, with about €46 million raised,...
Fintech Company Raisin Receives Unicorn Status After New Financial Injection
With the money from the new funding round, the fintech company now wants to develop new features that will "further...
Witti Finances Launches Activities in Ouagadougou
Through the official launch of its activities on March 21st, 2023, Witti Finances is now part of the Burkinabe banking...
Trichome Pharma Prepares a Greenhouse in Andalusia to Grow Medical Cannabis
Trichome Pharma envisions a greenhouse that will produce 20,000 seedlings per month. Among its agreements for the development of R&D...
AstraZeneca Increases Its Commitment to Spain with More Investments
AstraZeneca’s commitment to the Spanish territory can also be seen in the creation of infrastructure since it has allocated a...
Business1 week ago
No Major Spanish Bank Was Affected by Credit Suisse’s Collapse
Featured2 weeks ago
Scalapay Takes Over Italian Payment Institution Cabel IP to Expand in Europe
Cannabis4 days ago
Grünhorn Becomes Sponsor of the Leipzig Kings
Business2 weeks ago
Market Crash or Not, the Case for a Bear Market Is Improving
You must be logged in to post a comment Login