Australia lowers iron ore price outlook below $100/t by 2022

Australia expects the iron ore price to stay at around $150 per tonne until late 2021, before falling to $93 per tonne by the end of 2022, according to a report released on Thursday September 30.

The figure for 2022 has been revised downwards from $109 per tonne, as stated in a previous report published in June.

Falling domestic demand for steel in China due to slower construction activity and the implementation of a number of government policies has resulted in weaker iron ore prices, Australia’s department of industry, science, energy & resources said in its quarterly resources and energy report.

Weakening iron ore demand

Steel demand from the construction sector has weakened amid efforts by China to cool its overheating property market and deleverage the significant levels of debt in its economy. This has led to weaker volumes of land sales and new property starts in the year to date, the report said.

The construction sector accounts for 50-60% of Chinese domestic steel consumption.

Meanwhile, China’s central government has reiterated its commitment to curbing steel production from the September quarter, as part of its goal of lower national steel output in 2021 compared with 2020, the report continued.

“China’s steel output grew by 12% year on year in the six months to June, meaning production will need to fall by around 11% year on year in the second half of 2021 in order to meet this ambition,” it said.

The department also believes the renewed outbreaks of Covid-19 and flooding in central China from July have affected the country’s growth of retail sales and industrial output, further contributing to softer demand for iron ore from Chinese steel mills so far this quarter.

Improving iron ore supply

On the iron ore supply side, Australia expects the sources of tight global supply to continue easing through the September quarter.

Australia’s iron ore export volumes are expected to rise in the second half of 2021 due to major ports returning to full operation, improved weather conditions and new mines coming online. Supply from Brazilian miner Vale is slowly returning to levels seen prior to the Brumadinho tailings dam collapse in January 2019.

But pandemic-related labor shortages in Australia and growing congestion at Chinese ports also present a critical supply risk for the second half of this year, the report said.

Iron ore price outlook

“Steel output is forecast to remain at lower levels for the remainder of 2021. With growing supply of iron ore from Australia and Brazil also projected for the second half of 2021, this is likely to limit the size of any rebound in iron ore prices in the short term,” the report said.

The report indicates an average price of $150 per tonne for 62% Fe iron ore in 2021, down from a forecast of $152 per tonne in the June report, while the average price outlook for 2022 has been lowered to $93 per tonne from $109 per tonne previously.

Fastmarkets’ index for iron ore 62% Fe fines, cfr Qingdao averaged $163.39 per tonne in the third quarter of 2021, up by 38.4% year on year, but down 18.5% quarter on quarter.

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