Australia lifts iron ore price forecast for 2022
Australia has revised higher global iron ore price forecasts for calendar 2022, expecting new infrastructure investment and easier credit conditions in China to provide further support for steel demand, in turn underpinning iron ore prices.
The spot price for 62pc Fe iron ore fines on a fob basis is forecast to average around $110/t for 2022 from the previous estimate of $79/t made in December, the Australian government's commodity forecaster the Office of the Chief Economist (OCE) said in its March 2022 Resources and Energy Quarterly (REQ) report.
Downside risks to this price outlook include continued weakness in China's residential property market, the OCE said. China is the world's largest steel producer and consumer, and the largest importer of iron ore.
China made attempts to address surging property prices and high debt in the sector throughout 2021, which led to lower construction activity going into the start of 2022, the OCE said. China's property construction accounts for around 30pc of the country's total steel demand, and continued weakness in this sector would have significant implications for total Chinese demand for iron ore, it said.
"Over the outlook to 2027, iron ore prices are projected to decline to lower long-run levels," the latest report said. This decline will come as a result of more modest growth in blast-furnace steelmaking compared with the past decade from major producers such as the EU, the US and China, as the world undergoes a transition to a low-emissions environment.
This softer demand growth will take place alongside growing supplies from Australia, Brazil and Africa, and is expected to dampen prices over the outlook period to 2027. The OCE releases a REQ report each March containing a five-year outlook, whereas its three other quarterly REQ reports carry two-year forecasts.
The benchmark iron ore price is projected to average around $80/t in 2023, then decline by around 15pc/yr to reach $55/t in 2027, the OCE said. Iron ore prices rebounded in early 2022 after falling by more than 60pc through the second half of 2021. The Argus ICX 62pc index rose by $2/dry metric tonne (dmt) on the day to $160.10/dmt cfr Qingdao on 1 April, compared with $120.05/dmt at the end of December.
The price rise reflects an increase in Chinese steel output in recent months, growing expectations of a more accommodative policy stance in China this year and current supply concerns because of the Russia-Ukraine conflict, the OCE said. The conflict may tighten seaborne iron ore markets this year, with combined exports from both countries estimated at around 70mn t in 2021, it said.
Chinese portside iron ore inventories were around 160mn t by mid-March, well above the five-year average and just off multi-year highs, the OCE said. The high inventories will provide a buffer for Chinese steel producers and reduce the risk of tighter market supplies, it added.
The China Iron and Steel Association unveiled a plan in March to diversify the country's iron ore supply chain. Australia accounts for more than 60pc of China's iron ore imports. The plan includes boosting domestic output by 100mn to 370mn t by 2025; increasing steel scrap consumption by 70mn to 300mn t over the same period; and increasing equity output from overseas mines to 220mn t by 2025 from 120mn t in 2020, the OCE said.
| Global iron ore and steel output and demand (mn t) | ||||||||
| Segment | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | CAGR % ± |
| Global steel consumption | 1,959 | 2,004 | 2,026 | 2,050 | 2,072 | 2,089 | 2,106 | 1.2 |
| China steel output | 1,033 | 1,040 | 1,042 | 1,036 | 1,033 | 1,031 | 1,030 | -0.1 |
| Global iron ore trade, production and consumption (mn t) | ||||||||
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | CAGR | |
| World trade | 1,642 | 1,710 | 1,772 | 1,826 | 1,884 | 1,926 | 1,954 | 2.9 |
| China imports | 1,088 | 1,091 | 1,092 | 1,083 | 1,077 | 1,073 | 1,068 | -0.3 |
| Japan imports | 116 | 116 | 116 | 115 | 114 | 113 | 112 | -0.5 |
| EU imports | 113 | 117 | 117 | 118 | 119 | 119 | 118 | 0.8 |
| Australia exports | 872 | 919 | 951 | 976 | 1,012 | 1,041 | 1,047 | 3.1 |
| Brazil exports | 359 | 375 | 400 | 425 | 440 | 442 | 444 | 3.6 |
| Global iron ore prices (nominal) ($/t) (Mar 2022) | 143 | 109 | 79 | 71 | 68 | 66 | 63 | -13 |
| Global iron ore prices (nominal) ($/t) (Dec 2021) | 142 | 79 | 70 | n/a | n/a | n/a | n/a | n/a |
| Source: OCE's REQ March 2022 | ||||||||
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