BMI, a market analysis company under Fitch Solutions, has revised its iron-ore price forecast for 2024 down from $120 to $110 per ton. This adjustment reflects continued sluggish demand in mainland China, where the ongoing property market downturn is significantly affecting the iron-ore sector.
According to BMI’s market commentary on August 22, the price of iron-ore with 62% iron content at Qingdao Port has dropped to about $88 per ton as of August 16, the lowest since November 2022. The average price for 2024 so far stands at $109 per ton.
Iron-ore prices showed resilience earlier this year but have declined steadily due to weak demand from China, which shows little sign of improving. “Negative sentiment around the struggling Chinese property market, which appears unlikely to recover soon, will likely continue to suppress prices,” BMI stated.
Despite the lower forecast, BMI anticipates a slight improvement in iron-ore prices towards the end of the year, depending on potential economic stimulus measures from China.
Demand for iron-ore remains weak, mirroring the sluggish state of China’s steel industry. The property sector’s challenges have added to the negative outlook. From January to June, China’s crude steel production fell by 1.1% year-on-year, although it saw a slight 0.2% increase in June, according to the World Steel Association.
The domestic steel market faces ongoing difficulties, with the steel Purchasing Managers’ Index (PMI) dropping to 42.5 in July from 47.8 in June, indicating a downturn in activity. Key metrics such as steel production and new orders also fell sharply, signaling a challenging environment ahead.
In July, China’s overall manufacturing PMI remained below 50 for the third straight month, at 49.4, highlighting continued contraction in the sector. Baowu Steel, a major producer, warned in August that the current downturn in China’s steel sector could be more prolonged and severe than past declines.
While China’s iron-ore imports rose by 6.7% in the first seven months of 2024, this increase is largely attributed to stockpiling rather than increased consumption. As of August 16, iron-ore inventories at Chinese ports have grown by 31% to 149.6 million tons, which could further suppress prices in the coming months. BMI predicts that demand for iron-ore in China will remain weak due to persistent difficulties in the domestic property sector.
BMI’s analysts suggest that China’s property market downturn is likely to persist for years, driven by an oversupply of housing and reduced speculative demand. Developers are also facing a significant credit crunch, and it could take years to stabilize the sector’s finances. Moreover, potential homebuyers are deterred by declining property prices and the risk of unfinished projects.
Investment in China’s real estate sector fell by 10.2% year-on-year from January to July, following a 10.1% decline in the first half of the year. Beyond China, global steel production and iron-ore demand have remained subdued. The World Steel Association reports that global crude steel production was stable in the first half of the year, with a modest 0.5% growth in June.
Countries such as India, Turkey, and Iran saw notable increases in steel production during the first half of 2024, while Germany and Brazil also reported growth. However, key markets like Japan, the US, Russia, and South Korea experienced declines in steel production during the same period.
On the supply side, BMI noted that iron-ore production remains robust among major producers. Companies like BHP, Fortescue, Vale, and Rio Tinto have either increased or maintained high levels of production, supporting a healthy supply outlook.
Looking ahead, BMI expects iron-ore prices to continue on a downward trend over the next several years. “We anticipate that a combination of slowing steel production growth and increased iron-ore output from global producers will contribute to a more balanced market,” the firm said. They forecast that prices will decline from an average of $110 per ton in 2024 to $78 per ton by 2033.
The primary driver of this downward trend is expected to be reduced demand growth in China, which is already underway. A shift in China’s economic focus away from steel-intensive sectors towards services and less steel-dependent infrastructure will likely decrease demand for iron-ore.
BMI also forecasts that as environmental regulations tighten, the global steel industry will increasingly move towards low-carbon production methods, such as electric arc furnaces, which require less iron-ore than traditional blast furnaces. This shift could further reduce demand for iron-ore in the long term.
Additionally, BMI warned that if China’s economic performance remains weaker than anticipated, iron-ore prices could fall even lower than their current projections. Conversely, a stronger recovery in China’s property sector or supply disruptions at major mines could push prices higher.
Lastly, BMI noted that unpredictable factors such as adverse weather due to La Niña, as well as labor and energy challenges, could affect key iron-ore producing regions like Australia and South America, potentially impacting supply and prices.
Source: Mining Weekly
