Commodities
Goldman lowers Iron Ore price forecast, says supply cuts needed
Investing.com — Goldman Sachs in a note dated Monday has revised its price forecast for the fourth quarter of 2024, lowering the expected price to $85 per ton from $100 per ton.
This adjustment reflects growing concerns over an oversupply in the global iron ore market, exacerbated by persistently strong shipments and weakening demand from China.
Goldman Sachs analysts warn that without substantial supply cuts, the market will remain imbalanced, leading to further downward pressure on prices.
The 62% Fe iron ore spot price recently dropped to a nearly two-year low of $90 per ton, a 20% decline since July 2024.
However, global iron ore supply remains robust, with daily shipments running 2% higher than the same period last year.
This steady supply, coupled with sluggish demand, is driving the market into a surplus.
“While India has reduced exports, without a significant demand recovery (which we see as unlikely), we believe that producers further down the cost curve will also need to cut output in order to re-balance the market (as port stocks remain 30Mt above the 2016-2023 September average),” the analysts said.
While Chinese iron ore consumption has shown signs of stabilization, overall demand remains subdued. The weak macroeconomic outlook for China, including a downgraded GDP growth forecast to 4.7% for 2024, signals that domestic demand will not provide enough support for a recovery in iron ore prices.
Additionally, Chinese steel production, which is closely tied to iron ore demand, faces significant risks. After two months of decline, August saw a 21% month-over-month increase in steel exports, but the longer-term outlook remains uncertain as the potential for falling exports threatens to further depress demand.
Given the persistent oversupply, Goldman Sachs analysts argue that producers lower on the cost curve will need to implement supply cuts to restore balance to the market.
The brokerage suggests that prices may need to fall even further, to around $80 per ton, to eliminate excess supply from India and other marginal producers.
This price point would pressure supply further down the cost curve, leading to the necessary production cuts.
In the near term, Chinese steel mills may engage in restocking ahead of the “Golden Week” holiday in early October, which could provide temporary support for iron ore prices.
Recent data showed a 2.6% week-on-week increase in steel mills’ in-plant iron ore stocks, marking the largest jump since the pre-Lunar New Year period.
However, this restocking is unlikely to offset the broader surplus in the market.
MOSCOW (Reuters) – Nearly 500,000 metric tons of Russian oil products are trapped on tankers hit by U.S. sanctions, LSEG data showed on Wednesday.
On Jan. 10, new Russia-related sanctions targeted more than 180 vessels and insurance companies, adding to the impact of similar restrictions imposed by United Kingdom (TADAWUL:) and Europe Union.
The vessels under the latest U.S. sanctions include nine tankers that loaded oil products at Russian Baltic and Black Sea ports in December and January.
Four of them – Cup, Aquatica, Turaco and Onyx – are carrying in total around 280,000 tons of fuel oil, destined for India, Turkey and Singapore, LSEG data shows.
Another of the tankers – Ariadne – was loaded in December with about 35,000 tons of naphtha in the Russian Baltic port of Ust-Luga. It is drifting near Egyptian port of Port Said, according to shipping data.
Four other vessels from the sanctions list are carrying in total around 160,000 tons of ultra-low sulphur diesel and gasoil of Russian origin.
One of those cargoes – Pravasi – is discharging at the Brazilian port of Santos. Three other vessels – Symphony, Jupiter and Talisman – are on their way to Turkey, according to LSEG data.
Although there is a transition period, allowing the discharge of cargoes that has already been agreed, traders said concern about penalties has slowed activity.
Since the sanctions were announced, at least 65 oil tankers have dropped anchor at multiple locations, including off the coasts of China and Russia, ship tracking data showed.
By Arunima Kumar
(Reuters) -Oil prices paused their rally on Tuesday, but remained near four-month highs, with the market’s attention focused on the impact of new U.S. sanctions on Russian oil exports to key buyers India and China.
futures slipped 54 cents, or 0.67%, to $80.47 a barrel by 1033 GMT, while U.S. West Texas Intermediate (WTI) crude fell 53 cents, or 0.67% to $78.29 a barrel.
Prices jumped 2% on Monday after the U.S. Treasury Department on Friday imposed sanctions on Gazprom (MCX:) Neft and Surgutneftegas as well as 183 vessels that transport oil as part of Russia’s so-called “shadow fleet” of tankers.
“With several nations seeking alternative fuel supplies in order to adapt to the sanctions, there may be more advances in store, even if prices correct a bit lower should tomorrow’s U.S. CPI data come in somewhat hotter-than-expected”, said Charalampos Pissouros, senior investment analyst at brokerage XM.
The U.S. producer price index (PPI) will be released today, followed by the consumer price index (CPI) on Wednesday.
A core inflation rise above the 0.2% forecast could lower the likelihood of further Federal Reserve rate cuts, which typically support economic growth and could boost oil demand. [MKTS/GLOB]
While analysts were still expecting a significant price impact on Russian oil supplies from the fresh sanctions, their effect on the physical market could be less pronounced than what the affected volumes might suggest.
ING analysts estimated the new sanctions had the potential to erase the entire 700,000 barrel-per-day surplus they had forecast for this year, but said the real impact could be lower.
“The actual reduction in flows will likely be less, as Russia and buyers find ways around these sanctions,” they said in a note.
Nevertheless, analysts expect less of an supply overhang in the market as a result.
“We anticipate that the latest round of sanctions are more likely to move the market closer to balance this year, with less pressure on demand growth to achieve this,” said Panmure Liberum analyst Ashley Kelty.
Uncertainty about demand from major buyer China could blunt the impact of the tighter supply. China’s imports fell in 2024 for the first time in two decades outside of the COVID-19 pandemic, official data showed on Monday.
By Arathy Somasekhar
HOUSTON (Reuters) – Peru’s niche Bretaña is gaining popularity in the United States, with the first cargo discharging in the U.S. Gulf Coast this month as U.S. refiners seek alternatives for declining Mexican heavy crude.
Bretaña, a rare heavy sweet crude with minimal metals, is produced in the Peruvian side of the Amazon (NASDAQ:) rainforest. It is then barged along the Amazon river and loaded onto larger ships that depart from Brazil.
The vessel Radiant Pride transported about 300,000 barrels of Bretaña from Manaus, on the banks of the Negro river in Brazil, and discharged on Jan. 2 in Houston, ship tracking data from Kpler and LSEG showed.
The cargo was bought by oil major Shell (LON:), a source said. Shell declined to comment.
“Given the drop in heavy sour crude from Mexico to the U.S. Gulf Coast over the last year, we are starting to see new heavy grades being pulled in to backfill this loss – this is a trend we only expect to continue,” said Matt Smith, an analyst at Kpler.
U.S. imports from Mexico fell to their lowest on record in 2024 as the Latin American country’s oil production fell and a larger portion of output remained at home to be refined.
Two cargoes of Peru’s Bretaña, a relatively new entrant into the market since production began in 2018, discharged at the U.S. West Coast last year – one at Marathon Petroleum (NYSE:) and another at PBF Energy (NYSE:) terminals, the Kpler data showed.
Marathon Petroleum declined to comment. PBF Energy did not immediately reply to a request for comment.
PetroTal Corp, the producer of Block 95 where the Bretaña oilfield is located, bought the assets from Canadian producer Gran Tierra Energy (NYSE:) in 2017, and currently produces about 20,000 barrels of oil per day, according to Chief Executive Officer Manuel Zúñiga.
Challenges with transporting the crude via a pipeline operated by Peru’s state oil firm Petroperu led to a brief halt in exports between 2022 and 2024, Zúñiga said.
Petroperu has struggled in recent years to keep the line operational amid spills and social conflict interrupting its flow.
Three cargoes of Bretaña headed to the U.S. West Coast and one to the U.S. East Coast between 2020 and 2022, Kpler data showed.
About 90% of the Bretaña crude produced by PetroTal is exported, and the remaining is transported by barges to Petroperu’s refinery in Iquitos, Zúñiga said.
PetroTal has a contract with Houston-based Novum Energy under which Novum buys the crude for export and arranges its transportation, Zúñiga added.
Novum did not immediately respond to a request for comment.
While PetroTal hopes to increase production, permitting delays as well as reliance on barges are a current limitation, Zúñiga said.
“You need access to the pipeline,” Zúñiga said, adding that the company is working to secure use of the infrastructure.
Petroperu said last year that it would hold negotiations with producers in the Peruvian jungle so that they can use the pipeline with a fair rate to help cover operational costs.
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