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Iron ore price forecast: Can the commodity maintain its upward trend?

By Fitri Wulandari

Edited by Jekaterina Drozdovica


Updated

A lump of iron ore
Iron ore prices proved volatile in 2022 – Photo: HJPhtotos / Shutterstock.com

Iron ore prices have risen to their highest level since July 2022, despite a sluggish global economy.

China, the world’s largest importer of steel-making iron ore, has stepped up measures to prop up its property sector, reviving sentiment that it would recover the country’s demand for industrial metals. The removal of the country’s three-year Covid-19 restrictions further bolstered the optimism.

As of 6 January 2023, iron ore futures on the Singapore Exchange have gained 24.5% in the past three months, while spot iron ore (62% FE) has risen 20.44% in the same period.

Can iron ore prices maintain the gains? Here we take a look at recent iron ore price movements, the supply and demand conditions that shape the prices, and the latest iron ore price forecast for 2023 and beyond.

Iron ore price performance 2022

The price of iron ore (62% Fe) hit a record high of $219.77/tonne in July 2021. Producers struggled to increase their output to meet a rebound in demand as economies started to reopen amid easing Covid-19 restrictions.

However, prices gave up their gains in the second half of the year after China announced that it had curbed steel production to combat air pollution and reduce emissions ahead of the Beijing Winter Olympics in February 2022.

The country’s steel production was further constrained following power shortages which led to blackouts. A debt crisis faced by Chinese real estate firms, which began with problems for Evergrande, heightened concerns over demand from the country’s property sector and put further pressure on iron ore prices.

By November, iron ore on the CME was trading at the $99/tonne level, with the lowest price of $92 hit on 18 November 2021. On the Singapore Exchange, iron ore hit its lowest price for the year at $82.82/tonne on 18 November.

Prices started to climb above $100 in December. They ended the year at $120/tonne for iron ore futures on the CME and $116/tonne on the Singapore Exchange. In 2021, iron ore on the CME lost 27.81% compared to a 70% gain in 2020.

Prices fell steadily beginning in April 2022, reaching a low of around $78/tonne in late October as the slowdown in global industrial and construction activity reduced steel output, subsequently cutting iron ore demand.

Steel production in China has been constrained by lockdowns and a weak property sector. Outside China, slowing construction activity and higher energy costs have forced steel manufacturers to cut production as well. The iron ore market is oversupplied despite falls in exports from Russia and Ukraine, and lower exports from India due to an increase in export tariffs,” according to the World Bank in its October 2022 Commodity Outlook.

Prices started to climb back up in early November and continued to gain in the first week of January 2023

As of 6 January 2023, iron ore on the Singapore Exchange has gained 2.86% at $118.15/tonne in one year. Spot iron ore has declined nearly 5% year-over-year (YoY) to $114.97 as of the close on 5 January.

Drivers to iron ore prices

While many factors influence iron ore prices, China remains the primary driver of the ore price. According to data from Australia’s Office of the Chief Economist (OCE), the country is the single largest iron ore consumer, accounting for 62% of global consumption.

Because of the sheer volume of consumption, iron ore is one of the leading indicators of China’s economic health.

Let’s look into some factors that affect recent movements in iron ore prices.

Beijing property sector bailout package

In November 2022, the Chinese government unveiled a policy package aimed at rescuing the country’s real estate sector, which had been hit by a liquidity crisis and a sharp decline.

The policy, which aims to promote “stable and healthy growth of the property market,” includes liquidity relief measures such as developer pre-sales funds.

According to ANZ Research’s Quarterly Q1 2023, the Chinese Government’s measure put a floor under iron ore prices for the time being.

“Rather than a property boom, the above measures are more likely to prevent massive defaults and a further fallout. They are not intended to stimulate investment demand for property as the government’s ‘common prosperity’ mandate continues to weigh on market expectations,” ANZ Research’s analysts wrote in the report released on 15 December.

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ANZ Research analysts believed that it would be China’s infrastructure campaign to support economic growth that will boost demand for steel. The bank revised China’s steel production forecast for 2023 upwards to 1,050mt from its previous estimate of 1,010mt.

Improving supply, China’s low emission drive to limit upside

The World Bank in its outlook stated longer-term supply and demand projections pointed to downward pressures on iron prices. On the supply side, mining companies in Australia and Brazil – two major iron ore producers – were expected to add capacity.

“New projects are expected elsewhere (for example, Guinea), and rising steel recycling could bring more supplies into the global market,” the agency stated.

Australia’s OCE estimated iron exports from Australia and Brazil to collectively grow by around 38 million tonnes or 3.1% in 2023. The higher exports volumes followed a ramping-up of greenfield projects by major Australian miners, new supply from Vale’s Northern system and remediation work associated with its Southeastern system.

“Over the outlook period to 2024, iron ore exports ex Australia and Brazil are projected to grow modestly. New supply from Canada (from Champion Iron’s Bloom Lake Phase 2 expansion) and recovering supply from Ukraine are expected to offset depleting projects of other major producers,” Australia’s OCE said.

On the demand side, according the World Bank, China’s programme to lower emission levels could curb the country’s steel and iron ore consumption.


Iron ore price forecast for 2023

With China’s recent removal of its Covid-19 restrictions combined with continued measures to support the economy, while supply was expected to see modest growth, what will be iron ore predictions for 2023?

In its iron ore price forecast 2023, ANZ Research expected iron ore prices to fall to $95/tonne by December 2023, from an estimated $110/tonne in March.

The recent rally to USD110/t looks overdone as it assumes that demand will continue to grow at levels seen prior to the pandemic. As the reality sets in, we expect iron ore prices to moderate over the course of next year,” the bank stated.

The World Bank estimated the iron ore price to average $100/tonne in 2023, dropping from an estimated $120/tonne in 2022.

Fitch Solutions’ iron ore price forecast for 2023 saw the mineral averaging $100/tonne, down from $115 in 2022, while Australia’s OCE forecast iron ore (62% FE) to trade at average $83/tonne in 2023, falling from $100 in 2022.

Long-term iron ore price forecast

According to Australia’s OCE, iron ore prices were expected to fall toward lower longer-run levels beginning in 2024, owing to modest growth in blast furnace steelmaking as the world shifts toward lower emissions.

The agency saw iron ore prices dropping to $69/tonne over 2024 from an estimated $82 in 2023.

Slower growth in blast furnace steelmaking capacity will take place alongside rising supply from Australia and Brazil. A fall into global recession presents a downside risk to iron ore prices over the outlook period. While slowing industrial production seen in recent months may hamper growth heading into 2023, large infrastructure rollouts (including many new energy projects) across major economies are expected to provide support for steel (and iron ore) demand over the latter half of the outlook period,” it said.

ANZ Research forecast iron ore prices to stabilise at $95/tonne over 2024.

In its iron ore price forecast on 6 December 2022, Fitch Solutions suggested the price could drop to $90/tonne in 2024 from $100/tonne in 2023. In its long-term iron ore forecast in September 2022, Fitch Solutions’ iron ore price forecast for 2025 saw the price to drop to $80 and to $70 in 2026.

Its iron ore price forecast for 2030 was even more bearish, predicting the price to keep falling to $52/tonne and $50/tonne by 2031.

Note that iron ore price predictions can be wrong, and that forecasts shouldn’t be used as a substitute for your own research. Always conduct your own diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals. 

Keep in mind that past performance doesn’t guarantee future returns, and never invest or trade money you cannot afford to lose.

FAQs

Is iron ore a good investment?

Iron ore prices have been volatile in the past two years. Prices rebounded in the first half of 2022, on tight supply and an upbeat outlook on China’s steel demand, declined over the third quarter but rebounded in the fourth quarter. 

Whether iron ore is a good investment for you depends on your portfolio make-up, investment goals, and risk profile. Always conduct your own research, and never invest any money that you can’t afford to lose.

Will iron ore go up?

Fitch Solutions, ANZ Research, and Australia’s Office of the Chief Economist suggested in their recent forecasts that iron ore prices may trend downward in the longer term.

However, do note that analysts’ iron ore price forecasts can be wrong. Always conduct your own research, and only invest what you can afford to lose.

Should I invest in iron ore?

Whether you should invest in iron ore depends on your risk tolerance, investing goals and portfolio composition. You should always conduct your own research, and never invest any money that you cannot afford to lose.

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