ANZ head of commodity research Mark Pervan said the “party’s over for iron ore” after returning from a marketing trip to China to visit steel mills and traders.
 
He said the mood was cautious with participants seeing little upside in the near-term and a more muted outlook for the Chinese domestic housing market.
 
ANZ said the super profits enjoyed by iron ore miners over the past few years were over and the dynamic of large, low-cost producers bedding down market share had come 2-3 years ahead of expectation.
 
Majors BHP Billiton and Rio Tinto have been accused of “flooding” the market with supply to squeeze out smaller players.
 
As well as ongoing expansions from BHP and Rio, Vale is expanding in Brazil.
 
Anglo American’s 26 million tonne per annum Minas-Rio project, Brazil, and Hancock Prospecting’s 55Mtpa Roy Hill project in Western Australia will add even more supply next year.
 
ANZ expects the global supply surplus to peak at 56Mt next year, causing a sharp downgrade to 2015 price forecasts.
 
Iron ore price forecasts have been slashed by 22% to average $78/t next year, trading in a range of $70-85/t.
 
“We expect prices to recover mildly in 2016-17 as the Chinese real estate cycle starts to improve and high-cost mine supply closures in China accelerate,” ANZ said.
 
“However, a prolonged global surplus position late into the decade suggests prices are unlikely to breach $100/t again.”
 
The Metal Bulletin iron ore spot price for 62% fines is currently $75.80/t, around a five-year low.
 
However, ANZ does not expect prices to fall below $70/t, unlike Citigroup, which this morning slashed its 2015 outlook.
 
According to Bloomberg, Citi, which was already more bearish than most on iron ore, expects iron ore to average $65/t next year, down from $80/t.
 
Citi said iron ore would average $72/t in the first quarter, followed by $65/t in the second quarter, $60/t in the third quarter and $62/t in the fourth quarter.
 
Meanwhile, RBC Capital Markets also downgraded its iron ore forecasts once again after the price weakened beyond the bank’s expectations.
 
For 2015, RBC now expects prices to average $85/t next year from $100/t, $85/t in 2016 and $80/t in 2017 and 2018.
 
As a result, WA producers BC Iron, Atlas Iron and Mount Gibson Iron are all expected to be underwater in 2015.
 
Atlas is the worst hit – with an expected loss of $A48 million next year, a 448% cut from the previous forecast of a $9 million loss.
 
Fortescue Metals Group’s 2015 profit forecast has been cut by 29% to $US1.2 billion, while earnings outlooks for Rio and BHP were reduced by 23% and 12% respectively.
 
As a result, price targets for iron ore producers were also cut with Atlas again the worst-hit, with a 42% drop from 60c to 35c.
 
BC’s price target was reduced by 35% to $1.30, Mount Gibson’s by 23% to 50c and FMG’s by 18% to $4.50 from $5.50 previously.
 
FMG remains RBC’s preferred pick amongst the Australian pure-play iron ore producers.
 
“We believe junior producers are likely to struggle under our revised outlook; while balance sheets are typically strong in the space, we believe limited cash generation going forward makes them difficult investment propositions,” RBC said.
 
Iron ore producers were amongst the worst performers in the S&P/ASX 200 today, with Atlas down 7.5% to 24.5c, BC down 5.5% to 86.5c, Mount Gibson down 7.1% to 43.2c and FMG down 4.8% to $3.01.