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Fortescue CEO Refutes $70 Call on Iron Ore

Extreme bearish forecasts for iron ore prices to drop to as low as $70 a metric ton are an overreaction to the oversupply situation in the sector, said the CEO of the world's fourth largest iron ore producer.

Falling demand from China amid a glut has prompted Goldman Sachs and UBS to predict prices will fall to $70-$80 over the next two years, which is more than a 40 percent drop from current levels.

But Nev Power, CEO of Australian miner Fortescue Metals Group told CNBC that he expects iron ore prices to stay around $120 to $130 over the next few years.

"I think these are pessimistic forecasts, and we see long term iron ore price sitting well above these forecasts," Power said. "We just don't see that level of supply coming into the market. To get the price down below $100 a metric ton, you need some 300-400 million metric ton of new supply to come into market or the equivalent contraction in demand. "

Power added that he was hopeful demand from the world's largest consumer of iron ore, China, would be strong as economic growth picks up again in the world's second largest economy.

(Read more: China's Record Iron Ore Imports Buff Up Recovery Hopes )

"With the continued growth in China at 7.5-8 percent that's been forecast, that should translate to a 3-4 percent steel growth per annum and that's a nice support under the demand side," Power said. "So, it's very hard to see how these very low forecasts of $70-80 a metric ton are going to come to reality."

However, the pessimistic forecasts have led Australian-listed shares of big miners Rio Tinto, BHP Billiton and Fortescue to fall - all three saw drops of more than 2 percent on Thursday.

Malcolm Wood, head of investment strategy, Morgan Stanley Wealth Management backed Power's view and said that concerns about the outlook for iron ore were a "bit exaggerated at this point."

"We think that China is in a recovery phase. The anecdotal evidence I see coming out of the vehicle market, white good sales, property activity, all those sort of things are suggesting that china is in a moderate recovery," Wood said. "In addition to that, we might be getting strengthening in the U.S. as we go into the second half and the rest of Asia looks better."

Increasing scrap metal use in China and lower crude steel production have weighed on iron ore prices, which hit three-year lows in September, but then rebounded to hit a 16-month high of $158.9 in February as Chinese mills ramped up steel output.

(Read more: BHP Digging Deeper for More Ore to Feed China Steel Mills)

Iron ore prices since then, however, have fallen as doubts grow about the strength of future demand as stockpiles of steel products held by China hit record highs of 22.3 million metric ton in March.

-By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu