Steelmaking material, the precursor to this year's commodities boom, fell 60 percent from a record high of over $230 per tonne in May. Restrictions on steel production, along with concerns about property pressure and power outages, boosted iron ore demand in China. Still, analysts warn that the Chinese steel industry is facing prolonged headwinds.
“With the continued rollout of energy consumption restrictions, factory maintenance work is expanding, and especially construction steel volumes have fallen drastically,” said Qiu Yihong, Haitong Futures analyst. He said demand has also been disrupted by COVID-19 cases, bad weather, and broader weakness in property, manufacturing and automobiles.
Demand for iron ore may continue to shrink as China's now mature steel industry faces further caps in production, which fell to a 17-month low in August. Jiangsu, an economy as large as Canada, has curtailed electricity supplies to firms, including factories.
UBS strategist Wayne Gordon said iron ore will come under further pressure as a result and will fall to US$80 to US$90 per tonne next year.
"This is probably the last chance for fundamental growth in steel demand," ANZ Bank analyst Daniel Hynes told Bloomberg Television on Tuesday.
Iron ore's roller coaster ride in 2021 shows no signs of easing as prices rise sharply, ending an unprecedented decline, as investors watch debt woes simmering at China Evergrande Group.
China's central bank has also helped stabilize commodity markets by increasing short-term cash flow to the financial system. The developer's onshore property unit has reached an agreement to pay interest with yuan bondholders, providing some relief after fears over Evergrande's financial stability triggered a global risk run. told.
Iron ore prices rose more than 16 percent from their lowest close in 16 months to over $100 per tonne. Atilla Widnell, general manager of Navigate Commodities, said that events around Evergran
Shares of BHP Group and Rio Tinto Group fell as prices fell after the iron ore boom delivered record dividends to the world's top miners.
So far, iron ore has averaged $178 per ton this year, according to Mysteel Global figures. UBS now expects the full-year average to drop to $163 per tonne and forecasts just $89 for next year. Liberum Capital forecasts $93 per tonne next year.
According to an executive at a major steelmaker, the biggest problem for Chinese mills is uncertainty. He said that while production cuts are firm, but there is still the possibility of government incentives, producers are hesitant to make iron ore purchases given the risk of further price declines, and asked him not to reveal his identity as he was not authorized to speak. The rising price of metallurgical coal has also made it difficult for steelmakers to hedge.
As demand dwindles, miners rush to export iron ore to meet their full-year targets. According to vessel tracking data from UBS, Vale's shipments are up 12% week on week and Brazil cargoes should continue to rise through the end of the year. In a report released Tuesday, the bank said port inventories at 41 days' worth of use were pushing prices down.
The bearish outlook for iron ore caused UBS to lower its sales recommendation for Fortescue Metals and Vale.
Still, the big miners continue to profit: mining costs in Rio Tinto, for example, were between $18 and $18.50 per tonne this year.
David Radclyffe, senior mining analyst at Global Mining Research, said: “Today's price is still a very good one, given where the Australian producers' cost base is located. It wouldn't be too long ago for us to say that this is a good price for these manufacturers."
CME iron ore price rose 15.21 per ton to $110.58 today.
de had frightened the market earlier in the week and that steelmaking material was already oversold.
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