BMO: Long term iron ore consensus prices too low

Source: BMO

BMO Research forecasts a balanced (to possibly slight deficit) iron ore market through 2015, with no significant supply cuts required until 2018. Following a very strong Q1/13 for iron ore prices, BMO Research is revising down its forecasts for the remainder of 2013. However, the revisions reflect a price “correction” rather than changes to underlying fundamentals. Significant supply growth is nothing new; the majors have been expanding for a number of years. Potential surprise factors on the supply side are India and China. BMO Research’s long-term price of US$115/t (nominal) reflects current and future production costs and rising sea freight charges. Consensus long-term prices are, for the most part, unjustifiably low. For equity exposure to iron ore, BMO Research continues to recommend RIO and BLT on better forecast share price performance in a declining iron ore price environment.

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