It wasn’t too long ago that the big talk in commodity markets was whether there was a supercycle.
Analysts at UBS now have flagged the opposite, downgrading mining giant Rio Tinto to sell from neutral, as they said iron ore is approaching an infection point.
Iron-ore prices have surged from $80 a metric ton in 2019 to $220, but analysts led by Myles Allsop said prices could fall 50%. The supply disruption in Brazil, first caused by the Brumadinho dam disaster and then exacerbated by the Covid-19 pandemic, is being unwound, they said. China is looking to deflate commodity prices, including steel, by selling domestic reserves and by pressing commodity players not to drive up prices. Furthermore, the analysts said, iron-ore inventories in China are climbing.
Longer term, the analysts said latent capacity from the majors including Vale, Rio Tinto, FMG and BHP will further boost supplies. China also is proposing using more steep scrap, and the development of a trans-Guinean rail line is set to make Guinea a major exporter of iron ore by the end of the decade.
