Chilling iron ore forecast

A respected economics forecaster predicts that iron ore will slip below US$40/tonne by the end of 2015, and will trade in the US$30s in 2016.

While the price is now at US$44.20/tonne, revisiting July lows, former Asia-Pacific chief economist at Morgan Stanley Andy Xie is sticking by his long-standing dire predictions for the commodity.

He told Bloomberg that he expects the struggling Chinese steel industry, which accounts for around half of global output, to cut production.

“The steel industry is reaching a critical point,” he said. “They’ll have to cut production.”

In turn, Xie expects bankruptcies in the iron ore sector, among higher cost producers, while acknowledging that the dominant producer group of Vale, Rio Tinto, BHP Billiton and Fortescue has costs below current prices.

“The four of them, their production costs are all in the teens,” he said. “A lot of the marginal producers, the new guys, have to exit. I expect major bankruptcies in this industry.”

Xie has been predicting a collapse in iron ore prices since 2012.

According to Wikipedia, Xie has a degree in civil engineering and a PhD in economics from the Massachusetts Institute of Technology.

He is based in Shanghai and has attracted attention as a fairly accurate predictor of economic bubbles including the 1997 Asian Financial Crisis, dot-com bubble of 1999, and subprime mortgage crisis of 2008.