Australia’s Department of Industry, Innovation and Science has clipped its iron ore price forecasts for spot 62% Fe iron ore fines, according to its latest Resources and Energy Quarterly report, predicting that prices for this grade will average $79/t and $70/t FOB Australia in 2022 and 2023 respectively significantly lower than the $93/t and $81/t levels forecast earlier.
For 2021, the Office of the Chief Economist (OCE) at the DIIS has also reduced its the forecast for the present calendar year to $140/tonne FOB Australia from the previous $150/t. All prices are in in US dollars. The OCE attributed its sombre outlook for this year to the flat growth in Chinese steel output and the growing global iron ore supply.
In detail, the OCE predicted that the winter steel production constraints imposed on Chinese mills will remain until end-2021. “These curbs will require mills to maintain output below 2020 levels through to December 2021, with some increase then permitted through to March 2022”.
However, the Chinese government may still be keen to ensure reduced air pollution (and blue skies) for the Beijing Winter Olympics in February 2022, which might impact major steel-producing provinces close to the capital, such as Hebei, Shandong and Liaoning, and continue dampening iron ore prices through the early 2022, the report said.
For the longer-term, the report noted that China’s efforts to address surging property prices and high debt in its residential property sector also appear to be taking effect, which is expected to lead to lower construction activity going into 2022. “With the property construction sector a major end-user of steel (around 30% of China’s total demand), continued weakness in this sector has significant implications for iron ore demand over the outlook,” the OCE said.
For China’s infrastructure, the report predicted that the increase in funding is expected to boost new infrastructure activity from early 2022 and raise steel demand for this sector. However, the residential construction sector may continue to be weak, and it seems unlikely to return to levels seen in the first half of 2021.
Consequently, the OCE expected the average iron ore price over October-December to dip further to $85/t from the previous quarter’s $150/t.
In the report, the OCE also forecast that Australian iron ore exports would continue to rise in the current quarter as new replacement mine supply is gradually coming online for major Australian producers. It forecast that total exports would reach 875 million tonnes this year and climb to over 900 million tonnes in 2022.
Written by Victoria Zou, zyongjia@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint
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