JP Morgan has taken out the red pen to forecasts for the iron price based on subdued demand from China, the world’s largest consumer of iron and steel.
“We expect a second-half hangover from the weakest China property activity in more than 10 years to persist into 2022,” the influential Wall Street bank said in a note to clients.
“We expect weaker downstream steel demand to be compounded by a regime-shift that is imposing greater regulatory control over the property sector and emissions-intensive industries.”
Iron is the main component of rebar used to support the huge concrete structures popping up across the country, while the girders for such buildings are steel. So, a downturn in the Chinese property market will hurt the major excavators of raw materials.
JPM sees the iron price for 2022 and 2023 in the order of US$92 and US$90 per tonne respectively, down from US$105 and US$100.
Looking at the stock-specific implications, the bank has cut its price target for Rio Tinto to £49.50 a share from £60 and has downgraded the stock to ‘neutral’.
Anglo American, already ‘neutral’, is worth £26, down from £28, while the Glencore (‘overweight recommendation) valuation moves to £4.80 a share from £4.20.