Iron Ore Prices to Drop Below $50 per Tonne by 2019

SEATTLE (Scrap Monster): The Quarterly Report released by Australia’s Department of Industry, Innovation and Science forecasts severe drop in iron ore prices during the forthcoming years. The Resources and Energy quarterly report released Friday, predicts that the steel making raw material is likely to average $50 per tonne next year and may drop further to $49 per tonne in 2019.

According to the report, the value of Australia’s iron ore exports is forecast to decline sharply to $54 billion in 2018-’19 as compared with $63 billion in 2016-’17. The iron ore export volumes are predicted to rise from 819 million tonnes in 2016-’17 to 887 million tonnes in 2018-’19, mainly on account of enhanced productivity by various existing mines and new capacity additions. The projected earnings decline despite higher volumes is mainly on account of lower iron ore prices, the report said. During 2017, the prices may average at $64 per tonne but a gradual decline is expected during the December quarter.

The iron ore price outlook paints a grim picture, especially based on certain key factors. Firstly, the prices will be impacted by the pace and magnitude of the decline in Chinese steel production, which in turns depends on the policies by Chinese administration. The benefits received from recent price rally may permit companies to sustain production even at losses for a longer period of time. The oversupply of low-cost iron ore, especially from Australia and Brazil may result in price weakness.

A rising preference by Chinese steel mills for high grade ore and growing supply of low grade ore has further widened the price gap between high and low grade ore during September quarter. In order to comply with the government’s anti-pollution initiatives, increasing number of Chinese steel mills now prefer high grade ore as part of their efforts to increase the mill efficiency. This rising preference may impact producers of lower grade ore.

Meantime, global iron ore trade is predicted to grow at an average annual rate of 1.7% over the forecast period to touch 1.6 billion tonnes by 2019. The Chinese output, forecast to grow by 4.9% to touch 1.1 billion tonnes in 2017, is likely to remain broadly stable through 2019. Also, India’s iron ore exports are expected to double over the previous year to reach 38 million tonnes in 2017. However, the country’s ore exports may moderate over the rest of the forecast period due to increased consumption by the country’s domestic steel industry.