Three-decade iron-ore veteran says 2017 to bring challenges – by Jasmine Ng (Bloomberg/ – August 18, 2016)

SINGAPORE – Iron-ore strayed well off-script in 2016 as a rally surprised the bears. Michael Zhu, former global sales director at Vale SA, says the commodity will probably face a tough year in 2017 as supply keeps on expanding while China’s steelmakers struggle to sustain output at current levels.

“I’m not optimistic that the iron-ore price will keep going up,” Zhu, president of Hong Kong-based trader Millennia Resources Ltd., said in an interview, predicting that prices will probably trade between $50 and $60 for the rest of 2016. Next year will be challenging “because Chinese steel production, even if they try to keep at current levels, iron-ore supply will be increasing,” he said.

Iron-ore has soared in 2016 after three annual losses as leaders in China added stimulus and a credit-fueled property boom lifted demand, with steel production rising to a daily record in June.

Even as the unexpected surge prompted banks from Morgan Stanley to Goldman Sachs Group Inc. to raise their price forecasts this year, they’ve also flagged prospects for increased supply. That includes additional output from Australian billionaire Gina Rinehart’s Roy Hill project and expansions by top exporter Vale in Brazil.

“There’ll be pressure in the next one to two years,” Zhu, who’s been in the industry for more than 30 years, including 12 at the Rio de Janeiro-based company, said by phone on Wednesday. “The supply is increasing, there’s no doubt about that. The Australians are increasing. In Brazil, Vale is going to have this new S11D.”

Ore with 62% content delivered to Qingdao has risen 40% in 2016 to $60.87 a dry ton on Wednesday, according to Metal Bulletin Ltd.

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