Via Vivek Dhar, Mining and Energy Commodities Analyst at CBA:
“We still anticipate iron ore prices to fall later this year on surplus concerns,” he said in a note released today.
“Chinese iron ore supply, which is the most expensive in the world due to its low grade, will be key to this outcome.”
Dhar notes that Chinese iron ore production rose 12% to 258 million tonnes last year, managing to overcome strict environmental protection checks and depleted resources from years of mining.
“Environmental protection checks particularly hurt private iron ore mine output in Shanxi, Shandong and Sichuan,” he says. “Without these restrictions, China’s iron ore output could have been as high as around 280 million tonnes last year.”
Even at 258 million tonnes, Dhar estimates that Chinese iron ore production accounted for around 20% of its iron ore needs.
While Chinese supply is a wildcard for prices, Dhar says that falling steel prices, reducing steel mill margins, could present the biggest downside risk to iron ore prices later in the year.
“We still see steel margins dictating price action for iron ore once the steel output restrictions are lifted by mid-March,” he says.
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“With steel margins contracting, iron ore markets could face a sharp price correction in coming months.”
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
