Whereas the tempo of worldwide shipments is rising – largely from a return to increased ranges from Brazil, China’s persevering with demand could result in one other deficit, the financial institution stated.
BofA reiterated its ‘purchase’ suggestions on Vale, BHP and Rio.
The financial institution is now forecasting a world iron ore surplus of simply 12 million tonnes in 2021, a negligible share of the 1.6 billion tonne seaborne market, assuming Chinese language crude metal manufacturing grows 1.9 per cent subsequent 12 months after rising an estimated sturdy 4.3 per cent this 12 months.
“That tiny surplus leaves room for any modest disruption flipping the stability again into deficit.”
The financial institution additionally stated: “Whereas the premium for increased iron ore content material grades widened relative to the benchmark in latest months, comparatively weak metal mill income in China can mood the premium, in our view.”
BofA stated its provide and demand fashions had been “imperfect, and at present a forecasted slim surplus suggests the market may stay comparatively tight.
“We proceed to anticipate iron ore costs stay increased for longer, though we don’t imagine latest peaks better than $US120 a tonne are sustainable,” it stated.
“We anticipate Vale to maintain ramping up quantity, though Chinese language patrons probably construct stock into the fourth quarter to arrange for potential first-quarter climate disruptions, which might help demand and costs.
Whereas international provide is “normalising”, the financial institution stated China’s demand “can proceed to shock”.
World crude metal output fell 4.2 per cent ytd by way of August to 1.19Bt, partly offset by Chinese language manufacturing up 3.7 per cent to 689Mt, leading to China rising to symbolize ~60 per cent of worldwide output. “We imagine China’s authorities infrastructure stimulus ought to proceed to help demand into year-end whereas remainder of the world demand additionally improves.”