BHP hits an iron ore milestone, but with experts forecasting a multi-year downtrend, what will the future look like for the base metal?
Short-term outlook
Fitch Solutions’ industry research body BMI has maintained its 2023 iron ore price forecast at an annual average of $US110 per tonne ($171 per tonne) with cause for cautious optimism.
BMI’s report found strong risks to the upside as price resilience continues over favourable fundamentals from positive sentiment.
Also helping is falling Mainland Chinese port inventories and strong demand from the country’s non-property sectors including machinery, shipping, autos and infrastructure.
This growth continues despite China’s uneven economic growth, as blast furnace steel production is proving an insatiable destination for iron ore.
Outside of China, steel production and demand for iron is also starting to show signs of recovery, with a 6.6 per cent year-on-year increase in global crude steel production in FY23.
On the supply side, production remains healthy across major miners, with BHP celebrating the delivery of three billion tonnes of iron ore to China this week.
“Through the reliable delivery of our high-quality iron ore resources and significant investment in steelmaking capability, together we have grown trade and provided the materials necessary for economic development globally,” BHP chief commercial officer Vandita Pant said of the milestone.
Long-term outlook
Beyond 2023 iron ore prices are expected to follow a multi-year downtrend as cooling steel production growth and higher iron ore output from global producers will continue to loosen the market.
Prices are forecast to hit $US58 per tonne ($90 per tonne) in 2032, with China expected to be a main driver in the decline already in the early stages of shrinking demand growth. The base metal is today trading around $US122 per tonne.
A structural shift away from industrial, steel intensive sectors towards services and less-steel intensive infrastructure is the likely culprit.
But even though China’s annual consumption is expected to peak before the end of the decade, demand for the base metal across Asia more broadly will continue to grow, albeit at a very slow rate.