Iron ore’s rocky rollercoaster ride is set to continue in the near-term despite prices rising last week with overall September 2024 quarter spot prices falling to two-year lows on the back of weakness in global steel demand and declining steel production in China.
The Department of Industry, Science and Resources’ (DISR) latest issue of its Resources and Energy Quarterly: September 2024 forecasts lower prices over the outlook period to 2026. This in turn will reduce Australia’s export earnings for the steelmaking ingredient by more than $30 billion this year, from $138 billion in 2023–24 to $107 billion in 2024–25, easing to $99 billion in 2025–26.
Export volumes picked up in the June 2024 quarter amid improved productivity and the ramp-up of some newer mines. It is projected to increase by 1.7% annually over the next two years to reach 930 million tonnes in 2025-26.
Volatility persisted during the past quarter as the benchmark iron ore spot price (basis 62% Fe fines CFR Qingdao) plummeted more than 10% in mid-August to under US$90 a tonne. Prices consolidated and regained some ground in late August to bring the average to about US$95 for the quarter.
Prices of iron ore cargoes with a 62% iron content climbed toward US$94 at the start of October this year.
“Overall, iron ore prices have declined by more than a third since the start of 2024. These falls reflect weakening steel demand in China in the context of strong growth in iron ore supply,” DISR’s September report says.
Rugged terrain: Price movement highs and lows
In its quarterly review, the ANZ notes investors have responded to China’s weak growth through a build of large short positions in the commodity complex.
The ANZ highlights the iron ore market being on shaky ground in recent months with the spot price potentially dropping to US$80/t under a worst-case scenario where domestic Chinese supply is pushed out of the market. A 10% reduction in demand would see prices descend towards US$60/t, according to ANZ.
ANZ’s price drop expectations are in line with DISR’s forecast, which has also been revised down by about US$4 a tonne (FOB) in 2024 and 2025 compared with the June forecasts, while the 2026 price has been revised down by US$1 a tonne.
From an estimated average price of some US$92/t FOB in 2024, the benchmark iron ore price is now expected to drop to an average of US$80 in 2025, then decline further to about US$76 in 2026, DISR reports.
According to ANZ’s September quarterly report, ongoing weakness in China’s property sector amid broader concerns over global economic growth have seen prices test key support levels.
“Market fundamentals are weakening. We expect a rise in supply in the second half of the year from key exporters as they overcome disruptions due to weather and operational issues,” ANZ’s September quarterly report notes.
“This comes as headwinds for the Chinese steel industry remain strong. China has shown little inclination to further stimulate the property sector. Measures to date have had little impact on improving confidence in the property market. The focus remains on increasing supply of social housing utilising unsold inventory from the private sector.
“Risks remain skewed to the downside. China’s steel exports have strongly risen in 2024. However, that may come under threat as tensions rise with trade partners such as Europe and the US. China is also rationalising its approval process for new steel capacity. Previously a condition to build a new plant was the elimination of existing capacity. Those rules will no longer apply, with an alternative program to be developed. This could see steel output fall, weighing on iron ore demand.”
Export ebbs and flows
DISR expects the world’s two largest iron ore producers — Australia and Brazil — to continue collectively growing export volumes by 3.1% annually to 2026. This follows a ramp-up of greenfield projects for Australian miners and major expansions planned by Brazilian producers.
While the rocky ride with the rise and falls iron ore’s pricing frustrates the market, Australian iron ore export volumes picked up in the June quarter due to the aforementioned improved productivity and ramp-ups in newer mines.
The country’s iron ore export volumes are poised to increase by 1.7% annually over the next two years to reach 930 million tonnes in 2025-26.
Brazil’s total iron ore shipments rose by 1.6% year-on-year in the June quarter 2024. Vale (NYSE:VALE), which accounts for more than 80% of its domestic iron ore output, recorded an 7.3% output increase to produce 80.6Mt of ore in Q2 2024.
Brazil is forecasted to grow exports by some 6% annually over the outlook period to 2026.
New supply from emerging producers in Africa is also on the cards to contribute to the growth in global trade of iron ore, including from the Simandou mine in Guinea (pictured above) which is targeting first production in 2025.
Outside of Australia and Brazil, DISR expects iron ore exports to be bolstered by additional supply from Canada and India.
However, Australia’s iron ore exports are forecasted to reach 937Mt by 2026 while export earnings are set to decline after reaching $138 billion in 2023–24, reflecting higher production volumes and stronger prices. Moderating prices and a slightly higher AUD/USD exchange rate are forecast to lead to lower earnings heading into 2026.
Total export earnings are expected to decline to $107 billion in 2024–25 – then fall to an estimated $99 billion in 2025–26.
This year started with iron ore spot prices strengthening after steady rises in H2 2023, which was being driven by positive sentiment associated with the then policy stimulus provided to the Chinese economy.
In March, prices then fell to seven-month lows, reflecting mounting concerns about a rapid build-up of Chinese iron ore inventories amid sluggish growth in steel output. By 1 April, iron ore futures in Singapore fell 4.3% to under US$97/t – a 10-month low which added to its steep decline from more than US$130 in January.
While the rocky rollercoaster ride with iron ore’s price continues to frustrate miners and investors alike, the long-term demand fundamentals for the steelmaking ingredient look strong albeit after several more years of rise and falls.
Write to Adam Orlando at Mining.com.au
Images: Rio Tinto & DISR
