From expecting a rebound in the back end of the year, analysts are now scrambling to revise their calls. The latest today was Citi, which now expects iron ore to average $74 in Q1 and $60 in 3Q15. Weak demand and deleveraging have been primarily blamed for the recent selloff. APEC and pollution-driven steel production curtailments have also done some damage for demand. ANZ has also come out and downgraded its forecast by around 22%.
The supply side fundamentals have also drastically changed, given RIO and BHP are ramping up production. The impact of this has been particularly evident in the smaller miners and some investors continue to try to a pick a bottom in these stocks.
Fortescue testing key level
Fortescue Metals (FMG) has been one of the most interesting to watch locally and is even more enticing now, as it approaches some key levels. FMG tested $3 today, its lowest since July 2013 and has seen some buying off that level. While it is tempting to buy at this round number support, the recent trend makes this a risky proposition. The near term trend remains to the downside and volume has actually picked up, suggesting there is greater conviction among the sellers. If we see a close below $3 then short sellers are likely to ramp up their positions. The next key support comes in at $2.85, which is where the lows were in June last year and September 2012. Another factor working against FMG at the moment is that RSI isn’t even in oversold territory just yet, coming in at around 35. As a result, ‘bargain hunters’ will have to be patient here but short term traders could look to sell on a break below $3 or a move back into $3.20. Sellers could initially target $2.85 then reassess positions at that point.