The iron ore price has continued to falter in August after dropping to below $US130 ($180) per tonne last Thursday.
Around 40 per cent of the metal’s price has been shaved off since mid-July due to dwindling Chinese demand.
The price of Australia’s 62 cent iron ore fines imported to China’s CFR Qindao Port was $US134.7 per dry metric tonne on Monday, according to MySteel Global.
According to global firm UBS, the sharp decline from record high prices earlier this year comes as China pushes for a flat steel production target in 2021.
“This has resulted in mills destocking and iron ore prices falling sharply in a thin spot market,” a report UBS stated.
Despite the fall in iron ore prices, China is still accelerating domestic infrastructure construction, which has kept steel prices stable as iron ore declines.
UBS anticipates that China’s steel reductions will be targeted in the fourth quarter due to seasonally slow demand and a focus on air pollution ahead of the Winter Olympics in Beijing in February 2022.
The global firm expects iron ore prices to stabilise in September/October before declining to below $US100 per tonne next year.
Fitch Solutions stated in a report that demand from Chinese steel producers peaked in the first half of 2021, amid record high iron ore prices of more than $US230 per tonne which was achieved in May.
“In fact, we expect the demand impact from stimulus to start wearing off from late 2021 as construction projects reach completion and the pipeline of further new projects lessens, with the Chinese Government focussing on tightening credit lines,” Fitch Solutions stated.
“Additionally, the government is on a steel production limiting drive as an avenue to decarbonise the economy, where the aim for 2021 steel production is to total around 2020 levels.”
Fitch Solutions expects the iron ore price to decline to $US75 per tonne by 2025 due to a focus on decarbonised steel, which requires very small amounts of iron ore to produce.
“Consistent with this shift, we expect an increased focus on green (decarbonised) steel, which requires little-to-no iron ore and is produced at electric arc furnaces, compared to the current blast furnace production model that requires iron ore and coking coal, which is highly polluting,” Fitch Solutions stated.
Fortescue Metals Group produced its first-ever green iron ore product in July as part of its effort to decarbonise.