Iron ore will sink back below $50 a tonne by 2019 as global supply
continues to increase, steel inventories swell and Chinese demand dwindles,
according to Australia, the world’s top exporter, which released its revised
outlook just a day after the country’s largest port reported a jump in shipments for
Forecast comes only a day after the country’s largest
port reported a jump in iron ore shipments for August.
The steelmaking raw material will average $50 a tonne next year and
drop to $49 a tonne in 2019, Australia’s Department of Industry, Innovation and
Science forecast in its quarterly report released
“Growing low-cost supply from Australia and Brazil and moderating
demand from China, are expected to weigh on the iron ore price,” it says.
“There are several uncertainties impacting the outlook for the iron
ore price. The first is the pace and magnitude of the decline in China’s steel
production, which in turn largely depends on government policy.
“Second, companies have benefited from the recent price rally, and
thus may be able to continue to produce at cash losses for a longer period of
time. The resultant oversupply may bring on exaggerated price weakness.”
Price projections by the department refer to spot ore with 62%
content free-on-board from Australia.
Gerard Burg, senior Asia economist at the National Australia Bank
(NAB) is a little less bearish when it comes to price prediction. While he
agrees the current iron ore selloff will continue in the longer-term, he thinks
the decline will be mild, with the steelmaking ingredient hitting $60 a tonne
by December 2018, he told Business Insider.
That’s not far off its current level of $62.24 a tonne as of
Friday, according to the Metal Bulletin Iron Ore Index.
Australia not only hold 28% of the world’s total iron ore reserves
but it relies on the commodity for the bulk of its exports earnings. The
country exports 52% of the total world supply.