Iron Ore Deficit Looms, Goldman Sachs Forecasts Supply Shortfall For Year-end: Report

In a striking revelation by investment heavyweight Goldman Sachs GS, a crunch in the global iron ore supply is looming as the year winds down.

The forecasted deficit arises from dwindling inventories and a decrease in production, according to CNBC.

"Rather than facing a surplus for this year, the iron ore market is now set for a clear deficit," Goldman's report added, as noted by the outlet.

Factors contributing to the iron ore deficit include reduced supplies from key producers in Australia and Brazil. 

Goldman revised its global iron ore supply estimates for 2023 down from 1.557 billion tonnes to 1.536 billion tonnes. 

This revision reflects underperformance in supplies, particularly from Brazil's Vale VALE, which faced setbacks due to a conveyor belt failure at the S11D mine and reduced output in the Southern System. 

Also Read: Metals And Mining Giant Vale Misses Q3 Revenue Estimates On Weak Iron Ore Production

Low inventory levels in China, the world's largest iron ore consumer, have further exacerbated the situation, with potential risks heightened ahead of the Chinese New Year.

On the flip side, Goldman analysts pointed to the recent surge in fiscal expenditure by Beijing as a potential indicator of positive domestic growth sentiment. 

This increase in spending is likely to bolster the construction industry, which in turn could drive up the demand for iron ore, a critical component in steel manufacturing. 

In late October, the Chinese government announced the issuance of additional government bonds worth 1 trillion yuan ($139 billion), aimed at reconstructing areas affected by disasters and enhancing the nation's disaster relief capabilities.

Despite these developments, Goldman has maintained a cautious stance regarding the expected rise in steel demand from China's troubled property sector. 

Also See: Cleveland-Cliffs And U.S. Steel Lock Horns Amid Tensions In Sale Proceedings: Report

The ongoing property crisis in China poses a significant hurdle to achieving a stable economic recovery.

This expected shortage marks a reversal from Goldman's earlier projections of a surplus. The firm has now raised its iron ore price forecast significantly, expecting the average price for benchmark 62%-grade iron ore to increase from $101 per tonne to $117 in 2023. 

For 2024, a 22% increase is anticipated, raising the forecast from $90 per tonne to $110.

The deficit of iron ore for the rest of the year may weigh on companies from the sector like Rio Tinto Plc RIO, Cleveland-Cliffs Inc CLF, Arcelor Mittal MT and more.

Read Next: Rio Tinto's Pilbara Mine Q3 Iron Ore Production Slips 1%

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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