Australia expects slow decline in iron ore prices

The Australian government's commodity forecaster has revised up its iron ore price forecasts, with a softer landing over the next 2½ years from the current peak of over $200/t for 62pc Fe fines.

The Office of the Chief Economist (OCE) expects prices to ease from their current highs over the second half of 2021 but not to fall below $100/t until late in 2022 and average $90/t in 2023. At these levels all but the highest-cost producers in Australia will remain profitable, including the more than 10mn t/yr of new capacity that the OCE sees coming on line from small producers this year.

The OCE upgraded its price expectations for each year out until 2023 in its latest Resources and Energy Quarterly (REQ) from the previous report released in March. But it cut its Australian export volume expectations for 2021 to 860mn t from 897mn t because of a weak January-March quarter and the prospects for supply disruption during tie-in activity at major mining replacement projects being undertaken by big Pilbara producers BHP, Rio Tinto and Fortescue Metals.

Australia's dominance of the seaborne iron ore market is under threat, first from growing Brazilian exports in 2022 and 2023 and then in the longer term from development in Africa such as the Simandou iron ore project in Guinea, according to the REQ.

The OCE expects iron ore prices to ease, as production increases in Australia and Brazil over the remainder of 2021 following seasonal weather disruption in January-March and demand from China decreases because of government interventions and tighter control of Chinese steel exports. It warns however that any attempt by Beijing to constrain Australian imports of iron ore could lead to higher-than-expected prices. Australian exports of coal and other commodities have been constrained from entering China since the second half of last year as diplomatic tensions between the two countries continue.

The OCE's 2021 average iron ore price forecast of $152/t is up from the $110.40/t it forecast three months ago but lower than the ICX iron ore price for 62pc Fe ores that Argus has assessed at around $182/t in the year to date for 2021. Argus last assessed the ICX at $217.75/t cfr Qingdao on 25 June, down from a high of $235.55/t on 12 May.

By Jo Clarke

Iron ore prices $/t