Goldman Sachs warns on iron ore surplus as prices fall below $50

Goldman Sachs (GS) warned on Friday that benchmark iron ore prices could slump below $40 due to a growing supply surplus.

This came after benchmark prices declined below $50 on Thursday to the lowest level since February due to concerns that profits at Chinese mills are slumping. Prices remained at $49.90 per metric ton on Friday.

"Steel margins and prices could remain volatile in the near-term because inventory levels remain low. However, the window where a tight Chinese steel market acts as the main driver of iron ore prices is coming to a close," Goldman commodities analysts, Christian Lelong and Amber Cai, said in a report.

"We expect a growing surplus of seaborne supply to drive an increase in port inventories," they later added.

The analysts forecast spot iron ore would average $55 this quarter, before falling to $45 in the third quarter, $38 in the fourth quarter and $35 in the first three months of 2017.

Iron ore prices have declined by 27 percent since this year's peak on April 21 of $68.70 per metric ton.

Last week, Vale (Sao Paulo Stock Exchange: VALE'A-BR), a leading iron-ore mining company, warned of a negative outlook for iron due to supply concerns.

Follow CNBC International on Twitter and Facebook.

More From CNBC

• Top News and Analysis
  

• Latest News Video
  

• Personal Finance