Australia’s so-called millionaires factory is “tactically bullish” on its outlook for the nation’s most important commodity but warned of a potential iron ore surplus in the coming years.
In a recent research note to clients, Macquarie Group said its medium-term balances were “flashing red”, with a massive cumulative surplus of about 200 million tonnes now expected over the 2026-8 period — adding iron ore appeared a commodity for which there is no scarcity at the moment.
“Miners are going ahead with expansion projects which are not needed, according to our demand modelling, paving the way for serious price weakness needed to force mine shutdowns elsewhere,” Macquarie said.
“2024 is on track to be one of the worst years for the iron ore (supply and demand), with a surplus of about 48Mt on an annual basis according to our latest balance refresh.”
It said the main driver of supply growth was Rio Tinto’s Simandou mine in the West African nation of Guinea and Mineral Resources’ Onslow Iron project.
“Both have been sanctioned with (capital expenditures) now being spent and construction well underway, albeit the pace of production ramp up — especially in the case of Simandou, a huge mine with a complex infrastructure solution — is uncertain,” Macquarie said.
“We assume Simandou produces 5Mt in 2025, 40Mt in 2026, 75Mt in 2027 and 90Mt in 2028.”
Macquarie expects iron ore to remain a “range-bound” commodity this year and is forecasting spot price to average $US100/t in the second half of 2024.
Iron ore started 2024 about $US136/t and dipped below $US100/t during March. It has broadly managed to stay above that marker since.
The cooling off in iron ore prices is largely blamed on a lack of new activity in China’s steel-hungry property sector.
Macquarie is colloquially known as the “millionaires factory” for the huge salaries and bonuses it pays its top brass.
Source Agencies
