Iron Will Slump Back Below $50 on Supply, Top Exporter Says
Iron ore is bound for a retreat back below $50 a metric ton next year on prospects for rising global supplies as demand moderates in China, according to Australia, the biggest exporter.
Benchmark prices will average $49.10 next year and hold near that level in 2019, the Department of Industry, Innovation and Science estimated Friday in a quarterly report. Prices are seen at $62.40 this year, around the current level, bolstered by demand from China’s steel sector before easing over the next two years, according to the forecaster.
Iron ore has pared a steep quarterly loss after surging into a bull market last month amid signs of sustained demand from China, especially for higher grades. The department’s projections add to warnings from other forecasters including Goldman Sachs Group Inc. and Citigroup Inc. that increasing supply from low-cost miners will drag prices down.
“The iron ore price is forecast to ultimately decline,” the department said. “The seaborne iron ore market is forecast to remain well-supplied by low-cost producers in 2018 and 2019. Demand for iron ore is forecast to moderate over the same period, as steel production declines in China.”
Price projections by the department refer to spot ore with 62 percent content free-on-board from Australia. The outlook for 2018 was cut from a March estimate of $51.60. Ore delivered to Qingdao was at $61.96 a dry ton on Thursday, averaging about $74 this year, according to Metal Bulletin Ltd. It last traded below $50 in June 2016 and this year hit a low of $53.36 on June 13.
Cargoes from Australia may increase to 885 million tons in 2018 and 897 million in 2019, from 851 million this year, while Brazilian exports will expand 9.7 percent over the same period, the department estimates. The two countries are the world’s top shippers.
Australia’s earnings from ore exports will ease to A$54.7 billion ($41.6 billion) in 2018-19 from A$58.2 billion in 2017-18 and A$64.5 billion in 2016-17, the department said.
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