Credit Suisse gave an upbeat assessment of the steel market – which will have knock-on, positive implications for the price of iron ore. However, longer-term the outlook is bearish.
An increase in the iron ore price would be a positive for Australian major miners, including BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG).
Following a three-year downturn, the sector looks set to emulate the 2003/4 cycle, where prices spiked sharply, but Credit Suisse added: “Our fear is that, come the next steel destock, iron ore could hit US$60-70/t, likely in 2015. But the upside surprise risk is likely to dominate first, in our view.
“We think September could pose a risk for resource and steel equities given seasonality and emerging short-term risk factors, but also that this will give investors an opportunity to buy while, like now, the forward looking macro looks set for a recovery relative to what equities are pricing in.”
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