Andy Xie predicts that iron ore will slump into the $30s a metric ton this year as low-cost supplies rise and steel demand in China shrinks.
“When it peaked at $190, I started talking about a collapse and nobody believed me,” Shanghai-based Xie, a former Asia-Pacific chief economist at Morgan Stanley, said in a phone interview on Thursday. “We need to see prices much, much lower. It can still go down through $40 before we bounce back.”
The raw material used to make steel will probably average $50 this year, a level that he’s predicted since 2012, said Xie, who’s tracked the Chinese economy for more than two decades. Prices need to decline to a level that’s so painful higher-cost Chinese mines will be forced to give up, he said.
Iron ore collapsed 47 percent in 2014 and extended declines this year as surging low-cost output from Rio Tinto Group, BHP Billiton Ltd. and Vale SA spurred a glut just as growth in China slowed. China expanded at the weakest pace last year since 1990 amid a property market slowdown as policy makers sought to shift the economy away from investment toward consumption. The country accounts for about half of global steel production.
“We have a situation of declining demand and increasing supply,” said Xie, who also worked for the World Bank. “Domestic steel demand in China is actually declining and that trend is going to last a long time.”
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Dr Andy Xie 謝國忠, Shanghai-based independent economist, has just been named “ 50 Most Influential Persons in Finance”by Bloomberg, and is currently director of Rosetta Stone Advisors.Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.
Dr Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.