The world’s largest iron ore exporter delivered a mixed message on the outlook, raising near-term price forecasts but combining that revision with a more sombre message that China’s gargantuan imports are set to level off as steel production eases in the coming years.
Iron ore will average $61.80 a metric tonne this year and $51.10 in 2019, Australia’s Department of Industry, Innovation and Science said in a quarterly report on Monday. That compares with projections of $52.60 and $48.80 in the previous outlook. The forecasts are for free-on-board prices.
Prices are “expected to moderate, to better reflect the fundamentals of growing low-cost supply from Brazil and moderating demand in China,” the department said, predicting rising global volumes this year as well as next, driven by new mines including Vale’s giant S11D project in Brazil.
Steel production in China will drop each year through to 2023, while iron ore shipments from Australia and Brazil rise before levelling off, it forecast.
Iron ore received a battering in March, collapsing into a bear market, as investors fretted about weaker-than-expected springtime demand in top user China, record holdings accumulated in mainland ports, and jitters about global growth as the US and China swap barbs on trade.
Barclays is among banks that have flagged the risk of a further weakening of prices this quarter, highlighting the potential for a switch away from higher-content ores, which have seen strong demand as Beijing acts to battle pollution.
“Iron ore import demand is expected to be weighed down by declining steel production in China,” the department said. “The main drivers of declining steel production are slowing construction activity and infrastructure investment, and increasingly stringent environmental regulations.”
The spot price for ore with 62% content in northern China was at $63.35 a dry tonne, ahead of a two-day mainland break, according to Mysteel.com. That compares with $73.50 at the end of last year, and this year’s peak of almost $80 in late February. So far in 2018, the raw material has averaged about $73 a ton. On Monday, futures in Dalian and Singapore rose.
Among the department’s projections, China’s iron ore imports are forecast to ease from 1.08bn tonnes this year to 1.04bn in 2023. At the same time, nationwide steel output will fall from 832mn tonnes this year to 805mn in 2023, while local steel usage contracts from 772mn tonnes to 742mn.
Labourers work on a pile of iron ore at a steel factory in China (file). Iron ore import demand is expected to be weighed down by declining steel production in China, according to Australia’s Department of Industry, Innovation and Science.
