Will Iron Ore Prices Fall Below USD 50/MT in 2018?

The Steel Industry looks up to China for the forecast and plans its successive move to make the most of the opportunities available in the market. The current trends in Chinese market speak volumes to predict what the future holds for the steelmakers all over the world. Below are some of the indicators everyone that is related to the industry should watch for in coming days.

Rise in iron ore inventory at Chinese major ports: Iron ore stock at Chinese major ports have increased from 129.6 MnT as on 21 Apr’17 to 130.55 MnT on 28 Apr’17. The abundant supply of parked iron ore on Chinese ports has been having its unfavorable effect on global iron ore prices. The prices fell consistently for more than a few weeks now. Thirteen years’ high inventories at Chinese major ports are being looked at as a catalyst along with few other factors that will change the course for the rest of 2017 and the year next for iron ore prices.

Increasing iron ore supplies from Australia, Brazil & India: The other detriment is off-course the production itself that has steadily been growing for some time in major iron ore producing countries.

Brazil
The numbers for the quarter ended in Mar’17 suggest that Vale’s production grew by 11% Y-o-Y at 86.20 MnT over 77.54 MnT for corresponding period last year due to the ramp-up of the S11D and Itabiritos projects in the Southeastern System, it is estimated to produce 360-380 MnT iron ore by the end of 2017 which would mean a minimum of 3 % increase against 348.8 MnT production in 2016

Australia
Australian BHP Billiton the third largest iron ore producer’s output grew by 3.4% for Q2 at 60 MnT over 58 MnT in Q1 FY17. According to the report, the miner produced 118 MnT iron ore during first half of FY17. For Australian FY17, the miner maintains its production guidance between 228 and 237 MnT iron ore excluding production at Samarco. The miner produced 227 MnT iron ore during Australian FY16.

Moreover, the Western Australian Iron Ore (WAIO) output is recorded at 136 MnT in first half of FY17. The output increased by 4% Y-o-Y as it was 131 MnT during same time period a year earlier. In Q2 FY17, production from WAIO remained at 70 MnT.

WAIO’s output is recorded at 257 MnT in FY16. The output rose by 2% Y-o-Y as its Jimblebar mining hub operated at full capacity. The miner increased its forecast between 265 and 275 MnT for FY17. Along with a focus on productivity and the ramp-up of additional capacity at the Jimblebar mining hub, the company aims to increase its system capacity to 290 MnT pa in the FY19.

India
Indian iron ore output for Jan-Mar quarter is assessed by SteelMint at 56 MnT and is expected to reach between 210-220 MnT by the end of CY17. India produced 182 MnT iron ore in CY16 an increase of 30% Y-o-Y compared to 140.5 MnT in CY15.

A realistic view of supply over demand projects prices coming down to similar to the end of May’16 at USD 50/MT CFR China contrary to the anticipated increase in Chinese steel consumption, the buying is slowed down by the manufactures, some mill owner are preferring the local lower grade material in China over the higher grade foreign imported concentrate. In previous few weeks even after compromising prices the suppliers could not strike any large deals under tremendous pressure as buyers waited for further price fall to replenish their stocks.

The expert predictions of high prices to be afloat began to erode from the end of Mar’17 as soon speculators’ lack of interest bought the prices for the steel making material down below USD 80/MT CFR China after the futures were abandoned all of a sudden.

Intermittent rise with penny ante increase could not sustain the splendor for the material that attained the 30 months highest price on Feb, 21st 2017 at USD 95/MT CFR China.

Iron ore prices swirled down and hit almost a six-month low status last week at USD 62/MT CFR China on Apr, 18th 2017 as speculators evaluated the signs in the market from the largest consumer of iron ore China, there was also a steel output at a record in the month of March along with obvious increase in supply. A miner from Brazil, Vale is setting up a new facility, to boost up seaborne sales, presently miners in China have also increased the production levels.

Estimated production by three major iron ore producing countries for CY17

Figures in MnT
Source: Company Reports, SteelMint
*Expected

China’s increased iron ore imports & rising domestic iron ore output: China’s appetite for iron ore seems unending. China imported 271 MnT iron ore in Q1 CY17 against 241 MnT, thus up by 12% Y-o-Y. On the other hand, China’s crude iron ore production in the first quarter of 2017 was registered at 297.8 MnT, significantly up by 15% Y-o-Y as it was 259.2 MnT in the same period last year.

Declining Chinese steel prices: Amid weakening steel futures, Chinese domestic as well as export steel prices witnessed sharp plunge since beginning of Mar’17. For instance, Chinese HRC export offers have come down from USD 510/MT, FoB China in beginning of Mar’17 to currently prices of USD 420-425/MT, FoB China. On similar lines, Chinese rebar export offers have come down from USD 475/MT, FoB China in beginning of Mar’17 to current assessment of USD 410/MT, FoB China.

It seems the price decline spree is not coming to an end anytime soon. Unless some drastic measures are taken by the largest consumer of iron ore, the graph is headed only to south to slow down the already staggered market.