In its latest quarterly report, the Australia’s Department of Industry predicts Chinese steel output – which represents half global production – has reached its high water mark.
The official forecaster of the world’s top exporting country sees Chinese steel production peaking at 940 million tonnes this year before going into a steady decline, dragging down imports in the process.
This, coupled with supply returning to normal levels, will see the price fall to half today’s levels in 2021.
The Australia government’s office of the Chief Economist estimates iron ore prices would average $80 a tonne this year before falling to an average of just $57 a tonne in 2021 as the seaborne market returns to surplus.
The Chinese import price of 62 per cent Fe content ore jumped to $125.77 per dry metric tonne early this week. The price of the steelmaking raw material is up a stunning 73 per cent year-to-date and is now trading at its highest since January 2014.
Iron ore’s rally is primarily supply driven. Vale has suspended 93 million tonnes of production following January’s deadly dam collapse in Brazil, while Western Australian output was hampered by storms.
However, the supply crunch is beginning to ease. Rio de Janeiro-based Vale recently received permission to bring its 30 million tonnes a year Brucutu operation back into full production.
At the same time, Australian exports are hitting records with shipments leaving the busiest iron ore terminal in the world – Port Hedland in Western Australia – up more than 20 per cent year on year at the end of June. China imports around 70 per cent of the world’s seaborne iron ore which is estimated at more than 1.5 billion annually and Beijing’s economic stimulus has also buoyed the market.
Chinese steel output is up by more than 10 per cent so far this year, and is now running at an annualized rate of over 1 billion tonnes, and port stocks are 17 per cent below levels seen this time last year.