Australia forecasts 20 percent iron ore price drop
Australia on Monday said it expects iron ore prices to average $51.50 a ton this year, down 20 percent from 2017, due to rising global supply and moderating demand from top importer China as its steel sector shrinks.
The government projection is out of step with some private forecasts, however, with UBS and Citi calling for iron ore prices to average around $64 a ton for 2018 - flat on 2017's $64.30 - with the market proving surprisingly resilient.
Spot iron ore, currently around $75 a ton, last traded below $52 in June 2017, but Australian government agency Department of Industry, Innovation and Science resource and energy analyst David Thurtell pointed to an expected contraction in China's steel industry. "We're still comfortable with where our forecast sits," he said.
Two of the world's top three mining companies, BHP and Vale, rely heavily on iron ore sales for the bulk of their revenue despite efforts to diversify more into other industrial raw materials, such as copper, aluminum and coal.
Brazil-based Vale plans to lift iron ore exports by 7 percent in 2018 to 390 million tons.
In Australia, Rio Tinto and BHP, along with Fortescue Metals Group, aim to add about 170 million tons of new capacity over the next several years.
The forecast price decline will continue into 2019, when the steel-making raw material will average only $49 a ton, the department said in its latest commodities outlook paper.
The lower prices will reflect growing supply from low-cost producers and moderating demand from China, it said.
China is in the process of closing aging, high-polluting steel mills and induction furnaces to curb overcapacity.
Australia's liquefied natural gas exports are forecast to climb to 76.5 million tons in the year leading up to end-June 2019 from the 63 million tons forecast for the 2017-18 fiscal year and the 52 million tons forecast for last year.
Prices for coking coal, another key steel-making ingredient, are forecast by the department to drift lower over the next eighteen months from last quarter's benchmark price of $192 a ton as rising supply more than offsets demand.