The world’s largest iron ore exporter has delivered a mixed message on its outlook, raising near-term price forecasts, but combining that revision with a more somber message that China’s gargantuan imports are set to level off as steel production eases in the coming years.
Iron ore would average US$61.80 a tonne this year and US$51.10 in 2019, the Australian Department of Industry, Innovation and Science said in a quarterly report yesterday.
That compares with forecasts of US$52.60 and US$48.80 in the department’s previous outlook.
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 SA’s giant S11D project in Brazil.
Steel production in China would drop each year through to 2023, while iron ore shipments from Australia and Brazil would rise before leveling off, it forecast.
Iron ore received a battering last month, collapsing into a bear market as investors fretted about weaker-than-expected springtime demand in top user China, record holdings accumulated in its ports, and jitters about global growth as the US and China swapped barbs on trade.
Barclays PLC 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 iron ore with 62 percent content in northern China was at US$63.35 a dry tonne on Wednesday last week, according to Mysteel.com.
That compared with US$73.50 at the end of last year and this year’s peak of almost US$80 in late February.
So far this year, the raw material has averaged about US$73 a tonne.
Among the department’s forecasts, China’s iron ore imports are forecast to ease from 1.08 billion tonnes this year to 1.04 billion in 2023.
At the same time, nationwide steel output would fall from 832 million tonnes this year to 805 million in 2023, while local steel usage would contract from 772 million tonnes to 742 million.
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