Miners punished as iron ore price resumes decline

A new note by analysts from Citigroup added to the pressure on iron ore. Bloomberg reports Citigroup cut price forecasts by as much as 20% and the investment bank sees iron ore declining to the low $40s in six to eight months:

Citigroup sees the commodity at $51 a tonne in the third quarter compared with a previous estimate of $64, and at $48 in Q4 2017, down from $60 in its previous prediction:

Even with prices dropping, global supply continues to rise, according to Citigroup, which forecasts a surplus of 118 million tons in 2017 after a glut of more than 60 million tons last year. Ongoing expansion by large miners, notably Vale’s biggest project S11D and Roy Hill, will probably contribute about 60 million tons of additional supply this year, the bank estimates.

The negative outlook saw shares of the world’s top iron ore miners coming under renewed pressure on Tuesday.

World number one Vale dropped more than 4% in New York and the decline in iron ore (and nickel) have knocked $5 billion off the Rio de Janeiro-based company’s market capitalization over the past three months.

Diversified giants Rio Tinto (–3.2% on Tuesday) and BHP Billiton (–3.4%) between them have given up over $20 billion since the iron ore price peak mid-March.

Shares of Australia’s Fortescue Metals Group, a pure play iron ore producer, has lost more than 29% of their value over the last three months. The Perth-based firm is worth US$14.7 billion on the ASX.

ADRs of Kumba Iron Ore controlled by world number five diversified miner Anglo American,  dropped 5.3% in New York and the Pretoria, South Africa-based producer is down 37% since mid-March.

SLIDESHOW: The iron ore price wars 2002–2017