SINGAPORE – Iron-ore’s 2016 rally may be about to face a challenge from the changing of the seasons. Morgan Stanley has forecast that prices may tumble back to $40 a metric ton this half as the approach of winter in China typically blunts steel demand and output.

“Our short-term forecast still features a September-October seasonal pullback as China’s steel demand and production rate abates,” analysts including Joel Crane wrote in a report. Over the past 10 years, iron-ore prices have on average dropped in September, October and November, according to the report.

iron-ore has soared in 2016, snapping three years of declines, as stimulus and a credit-fueled property boom in China lifted demand. The upsurge confounded expectations for further losses, and prompted banks including Morgan Stanley and Goldman Sachs Group Inc. to revise forecasts higher earlier this year. While China’s steel production has been robust so far in 2016, demand may ease as the summer ends, according to Morgan Stanley’s note.

The “season is mature now; the reliable September-to-October pullback is nigh,” Crane wrote, adding that rising mine production in Australia and Brazil may also help to blunt prices. “Beyond the seasonal pullback, ore prices should also become increasingly capped in the second half by ongoing supply growth.”

Record Rate

The raw material with 62% content delivered to Qingdao has risen 38% in 2016 to $60.22 a dry ton on Monday, according to Metal Bulletin Ltd. The gains have come as steel prices surged and daily rates of output in China hit a record, while shipments of steel products held near an all-time high. Futures in Singapore and Dalian gained on Tuesday.

Construction in China typically slows in the colder, winter months. Asia’s top economy accounts for about half of global steel production, and its mills are the world’s largest buyers of seaborne ore. Winter constraints on Asia’s trade and deployment of steel are profound, according to Morgan Stanley.

The bank maintained its forecasts for the raw material to average $45 a ton this quarter and $35 in the final three months of 2016, with a base-case estimate of $40 for the second half. So far this year, the Metal Bulletin benchmark has averaged about $53 a ton.

Morgan Stanley flagged prospects for increased output from Brazil’s Vale SA, which is expected to start output from its S11D project before the year-end. There’s also new supply from Australian billionaire Gina Rinehart’s Roy Hill project in the Pilbara, which is ramping up production this year.