Iron ore will be the worst hit among metals this year, as reduced imports by a slowing China and new capacities will put huge pressure on global prices, the World Bank said.
It said in its latest commodity markets outlook report that metals prices are expected to decline by 10 percent in 2016 due to slowing demand in emerging market economies, especially China, and increases in new production capacity.
Iron ore prices are projected to decline most — down 25 percent — due to reduced imports from China’s steel producers and new capacity in Australia and Brazil, followed by nickel (down 16 percent) and copper (down 9 percent), the report said.
“Most other prices are also expected to fall, as markets remain well supplied with elevated stocks. Markets are expected to tighten in the medium term due to reduced investment in production capacity, stronger global demand, and some specific factors, including the continued impact of Indonesia’s ore export ban and closure of large zinc mines due to exhaustion,” it said.
According to the report, downside risks to the forecast include slower demand in China and higher-than-expected production induced by cost reductions and currency depreciations in producer countries. “Upside risks are centered on stronger global demand growth and supply shortfalls from project delays and disruptions, falling ore grades, environmental constraints, higher costs (such as for energy), and accelerated closure of high-cost capacity,” it added.
Iron ore prices plunged 15 percent in the fourth quarter—down eight consecutive quarters and now barely one-fourth of the high reached in 2011—on continued oversupply, weak demand from the steel producing sector in China, and de-stocking of iron ore at Chinese mills.
New low-cost iron ore capacity continues to come on-line in Australia and Brazil, and is forcing closures of higher-cost mines in China and elsewhere., the report said, adding that other capacity has been temporarily idled or curtailed, and some projects are ramping up at a slower pace than planned.
“In addition, a tragic tailings dam collapse at Brazil’s Samarco mine has caused the indefinite closure of annual production near 30 million tons (2 percent of total seaborne supply). Global seaborne iron ore demand may be nearing a peak due to China’s transition to a less-metal intensive economy, and as a result of rising scrap metal availability.”