A ‘complex outlook’ for iron ore prices

Iron ore prices in 2025 face a complex outlook, shaped by shifting Chinese demand, potential oversupply, and ongoing investment in new production.

Optimism rose from China’s trade data in the past week, enabling iron ore prices to recover a $US100-per-tonne (t) baseline. The commodity sat at $US101.34/t at market close on January 23.

A consensus among major banks points to declining iron ore prices this year, with Westpac anticipating a sharp drop to $US70/t, while Commonwealth Bank (CBA) sees it falling to around $US80/t.

While projections vary, none foresee prices edging back towards the record highs of 2021, when prices exceeded $US200/t.

The overriding factor behind these bearish forecasts is oversupply, with inventory levels nearing record highs and new supply arriving in 2025.

Rio Tinto’s Western Range project in Australia, capable of delivering 25 million tonnes annually, and the Simandou project in Guinea, slated for an eventual output of 120 million tonnes annually, are set to increase global availability significantly.

The timing and scale of these projects may weigh heavily on future prices.

Tier 1 miners aren’t deterred, with the likes of Rio, BHP and Fortescue still keen to bring new projects online. Given the size of their iron ore operations, majors are insulated by a lower-cost profile enabled by economies of scale.

Optimism for price resilience largely hinges on China, with recent data showing stimulus-driven price jumps.

But China’s property market still remains uncertain. By late 2023, development in residential real estate fell 20 per cent below 2019 levels, and new housing sales declined nearly 50 per cent according to the National Bureau of Statistics of China.

Iron ore prices in the near future will depend heavily on Chinese policy and stimulus effectiveness, balanced against the inevitability of new supply, particularly from higher-grade mines such as Simandou.