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Bernstein lowers Q3 iron ore shipment forecast to 318.7 Mt

Sanford C. Bernstein expects global iron ore shipments in the third quarter to total 318.7 million tonnes, down from the initial 320.6 Mt the team forecast about a month ago.

According to a Sept. 6 note, the new estimate presents a 1.0% increase on volumes recorded in the second quarter and a 2.6% jump year over year, compared to the previous estimate of a 1.6% and 3.2% increase, respectively.

Second-quarter shipment volumes totaled 320.0 Mt, while reported sales amounted to 315.5 Mt, up 6.8% quarter over quarter and 6.3% year over year.

In a Sept. 3 note, Bernstein said it expects iron ore prices to bottom-out in 2018 and meaningfully recover thereafter amid an accelerating supply deficit.

Overall demand for iron ore will increase by about 2.2% yearly between 2019 and 2025, while global supply is estimated to slip by about 1.1% per annum, mainly due to lower production in China, according to Bernstein.

The team noted that many producers have a "value over volume" strategy in place and are reluctant to increase output at current price levels.

New iron ore-focused investments are mainly going toward replacement projects instead of adding new capacity.

"The current levels of capex are sufficient to maintain volumes and offset the effects of depletion but not to deliver any meaningful growth," the team said.

Bernstein anticipates that Vale SA can push production towards 450 Mt per annum, however, the company should wait for a recovery in iron prices before increasing volumes. The analysts cut their third-quarter shipment estimate for Vale to 100.0 Mt from 101.1 Mt.

Rio Tinto is expected to maintain annual supply between 330 Mt and 340 Mt before increasing output to 360 Mt in the medium term.

Rio Tinto's shipments are now expected to total 82.0 Mt in the third quarter, slightly lower than the previous forecast of 83.2 Mt.

BHP Billiton Group is expected to achieve its goal of a 290 mtpa run rate by the end of this year and hold production at those levels. The South Flank project will come online in 2021 but will only replace the output from the Yandi mine instead of adding new capacity.

Third-quarter shipments from BHP are now estimated at 74.3 Mt, down from 75.4 Mt previously.

Fortescue Metals Group Ltd.'s Eliwana project, part of the Western Hub, will allow the company to keep output stable after closing the Firetail mine.

The analysts hiked their third-quarter forecast for Fortescue to 38.1 Mt from 36.3 Mt.