Iron ore prices slump on improved supply, lower demand

Published on November 12, 2021 04:18 PM AEDT

Iron ore prices slump on improved supply, lower demand — Image source: Falling iron ore prices | Source: © Argus456 | Megapixl.com

Highlights

China forced its steel mills to lower their output during the winter season ahead of Beijing's Winter Olympics.

Australia and Brazil have started to loosen tight supplies of iron ore in the seaborne market.

The prices of iron ore are expected to decline from an average of US$155 per tonne in 2021 to US$65 per tonne in 2025.

The iron ore price rally has cooled down with prices tumbling below the forecasted range, extending its downward momentum below US$90 per metric tonne, the lowest since May 2020. The significant drop in the prices was underpinned by weak industrial demand in China due to curbs in the production of steel.

After enforcing steel production constraints in 2021, Chinese steel mills were forced to lower their output during the winter season ahead of Beijing's Winter Olympics. Furthermore, the country’s property sector is under pressure as the country tightens credit lines as Evergrande’s difficulties sparked contagion for other property developers of the country.

Improved supplies

While glancing on the supply side, improved production growth from Australia and Brazil have started to loosen tight supplies on the seaborne market. However, Brazilian miner Vale SA may take a longer time to return to pre-Brumadinho dam collapse capacity levels.

The miner is currently working at a production capacity of 330Mt. Vale’s Q1 2021 iron ore production was 68Mt, nearly 14.2% above Q1 2020 production.

FMG Group | Source: © Timonschneider | Megapixl.com

Additionally, Fortescue Metals Group has also beaten its full-year shipment estimate in FY21 with a total volume of 182Mt.

While looking at the long-term outlook, iron ore prices are expected to follow a multi-year downtrend, as per the Fitch estimates.

Fitch forecasts that the prices of iron ore will decline from an average of US$155 per tonne in 2021 to US$65 per tonne in 2025.

Bottom Line

Iron ore prices tumbled to record low levels on the back of lower demand in China due to steel production curbs on environmental concerns and an improved supply from the iron ore producing nations.

Arpit Verma

Author

Arpit Verma - Research Analyst
292 Posts
Arpit is Research Analyst at Kalkine Media Pty Ltd. He has a wide experience of around 6.5 years in the oil & gas, mining, energy, and commodities domain. He has completed his M.Tech in Petroleum Engineering and B.Tech in Geoscience Engineering from ...

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