Iron ore: what to look for in 2016 Report

Insight 18 January 2016

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Report summary

Weak demand and persistent deflationary pressure pose downside risk to iron ore in 2016. The latest fall in crude oil and ongoing weakness in producer currencies could erode cost support below our base case and prevent any meaningful price recovery in a market characterised by excess supply capability and stagnant demand. In this Insight we highlight some key themes and risks for iron ore in 2016.

Executive summary
Theme 1: Chinese demand could be worse than forecast.
Theme 2: supply side shake-out will accelerate industry consolidation
Theme 3: cost deflation could have further to run.
Theme 4: will China continue to support loss making mines?
Theme 5: project delays
- Minas Rio (Anglo American)
- Serra Sul (S11D) (Vale)
- Roy Hill (Hancock Prospecting)
Theme 6: upside risk for DR-grade pellet premia
Theme 7: value in use no longer holds; low grade fines preferred.
Theme 8: paper trading is taking off.