The price of iron ore futures has dropped below US$100 ($137.60) a tonne on the Singapore Exchange as shipments from Port Hedland in Western Australia also continue to decline.
Port Hedland recorded its lowest shipments in six months in August at 44.7 million tonnes, including 43.9 million tonnes of iron ore, according to Pilbara Ports Authority.
The price of 62 per cent Australian iron ore on Friday imported to China’s CFR Qindao Port also declined to $US100.2 per tonne by the end of Friday, marking a $US6.15 decrease from the previous day.
According to UBS, iron ore price will fall below $US100 per tonne by the end of 2021 and average $US89 per tonne next year.
“We cut our iron ore price forecasts for 2021-23 by around 10 per cent as we now expect the market to be in surplus from the second half of 2022,” UBS stated.
UBS’s China materials team stated that China has cut steel production due to a weaker property market, which has affected iron ore demand.
It is expecting Chinese steel production to plateau in 2022 to 2023 at 1.07 billion tonnes, with seaborne iron ore to be in surplus.
After reaching record territory of $US230 per tonne in May, the price of iron ore has declined by more than $US130 in less than four months.
“The correction in iron ore prices has played out faster than expected,” UBS stated. “Prices have fallen more than 50 per cent since peaking in mid-May,” UBS stated.
“This is driven mainly by a sharp slowdown in property activity in China with the tightening measures/ Evergrande default impacting confidence.”
UBS stated that Rio Tinto will cut its guidance due to the iron ore price decline, and is expecting that the iron ore price and China stimulus activity will determine Rio Tinto’s output in the near term.
“We see five to 10 million tonnes downside risk to (Rio Tinto’s) 2021 Pilbara shipment guidance of 325 million tonnes with volumes lacklustre in July and August,” UBS stated.
Venture Minerals has been forced to suspend operations at the Riley iron ore mine in Tasmania due to a lack of cost efficiency in response to declining demand.
The company is hoping that the issues with cost-effective iron ore production won’t be long term.
“Our inaugural shipment marks a significant milestone for Venture Minerals and is the culmination of considerable efforts by all stakeholders to successfully establish a resource base, secure environmental and transportation approvals, processing plant construction, commencement of mining and ore hauling, and now first commercial iron ore shipment,” Radonjic said.
“Although the company believes that some of the external pressures in the market will likely only be temporary, Venture believes the best course of action is to temporarily suspend mining operations to preserve the reserve base while the company works through potential cost efficiencies and assesses the broader market volatility.”