Iron Ore Prices May Fall to $US80 Amid China’s Steel Sector Crisis, Warns CBA

September 17, 2024 12:14 PM AEST | By Team Kalkine Media

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Iron Ore Prices May Fall to $US80 Amid China’s Steel Sector Crisis, Warns CBA — Image source: Shutterstock

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Iron ore prices are under significant pressure due to ongoing challenges in the Chinese steel sector, with recent warnings suggesting a potential decline to $US80 per tonne.

Current Market Conditions

According to Commonwealth Bank (CBA), iron ore prices need to fall well below $US90 per tonne to compel additional cuts in output from Indian producers and address the substantial stockpiles of iron ore accumulating at Chinese ports. The current spot price of iron ore stands at $US90.95 per tonne, reflecting a notable decline from recent levels.

Forecast Adjustments

CBA's warning highlights the risk of iron ore prices dropping to around $US80 per tonne, which is approaching the lower end of current forecasts. Goldman Sachs has also adjusted its forecast, predicting that iron ore prices will average $US85 per tonne in the fourth quarter of this year. This forecast marks a 15% reduction from its previous estimate of $US100 per tonne.

Factors Driving the Price Decline

The significant drop in iron ore prices, which has already decreased by 20% since July, is primarily driven by two key factors:

China’s Property Sector Slowdown: China’s struggling property sector has significantly impacted steel consumption. As the real estate market in China continues to weaken, the demand for steel—an essential material in construction—has declined, leading to decreased consumption of iron ore.
Strong Supply and Market Surplus: Robust iron ore supply has exacerbated the situation, pushing the market into surplus. This oversupply, combined with stagnant demand, has led to downward pressure on prices.

Implications for the Market

The current conditions suggest a challenging environment for iron ore producers, particularly those in India, who may need to reduce output further to stabilize the market. The oversupply situation and weak demand in key markets like China are key factors influencing the price dynamics of iron ore.

As the global market adjusts to these developments, the outlook for iron ore prices remains closely tied to economic conditions in China and the broader supply-demand balance in the steel-making raw material market.

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