Australia’s Department of Industry, Innovation, and Science predicts that the spot price for 62% Fe iron ore will ease to $78/tonne (FOB) on average during 2020 and decline further in the coming year.
According to the department’s latest resources and energy quarterly report released recently, the real iron ore price is predicted to decline to average $70/t in 2021, as iron ore supply disruptions encountered in 2019 are expected to be resolved over the next 12 months, with the seaborne market returning closer to balance.
Iron ore prices had experienced a round of large surges in 2019 following the Brumadinho tailings dam collapse in Brazil in late last January, as Mysteel Global reported. The ore price fell beginning in last July with the gradual recovery in overseas supplies amid the cooling of Chinese domestic steel production.
However, subsequent supply disruptions recently including cyclones in the Pilbara region of Western Australia in early February, and flooding in the south and east of Brazil over the past several months pushed iron ore prices up again from late 2019 through early 2020, with the 62% Fe iron ore price (FOB Australia) climbing above $85/t over most of January and February from some $75/t in November, the report showed.
For the future, iron ore prices remain subject to supply disruptions and events in China, the department commented in the report.
Such a trend was clear when Chinese steel production showed declines in late 2019 that significantly influenced iron ore markets. Currently, the COVID-19 outbreak “represents a significant risk to iron ore prices, port access, and trade,” the report warned.
Thus, the department expects prices to face downward pressure in the near term, due to the impact of COVID-19 and flat global steel demand.
“Uncertainty created by COVID-19 is assumed to recede in the second half of 2020, and short-term weather disruptions in Australia and Brazil are expected to pass by the end of March. Rising supply in Brazil will likely put considerable downward pressure on prices over coming quarters,” the report said.
Nevertheless, “further disruptions among major producers, unexpected delays in restoring production, or additional Chinese stimulus measures could each put countervailing upward pressure on prices over the next year.”
Other than COVID-19, the influences on iron ore prices also include the level of progress of trade negotiations between the US and China, the pace of global urbanization, and the scale of transformation among key economies such as India. Construction will affect iron ore demand, as will changes in automotive builds away from steel and towards aluminum, the report also mentioned.
As a result, the department expects a gradual price decline in iron ore over the next few years, first falling from about $86/t in the current March quarter to $78/t in the June quarter 2020, and $71/t by the March quarter 2021.
During the period, the market balance is forecast to move from a 20 million tonne deficit in 2020 to a small surplus by 2022, with iron ore production returning to normal in Brazil and rises elsewhere, it also said.
As of March 18, Mysteel’s SEADEX 62% Fe Australian iron ore fines index stood at $90.95/dmt CFR Qingdao, East China’s Shandong province – a relatively high level after the reopening of the market following the lengthy Chinese New Year holiday over January 23-February 2.
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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