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Market analysis firm BMI, a Fitch Solutions
company, has revised down its 2024 iron-ore price forecast from an average of
$120/t to $110/t, as subdued demand in mainland China amid the ongoing property
downturn continues to exert downward pressure on the iron-ore market.
In its market commentary published on
August 22, the company said that iron-ore, at 62% iron content, prices at
Qingdao Port were currently hovering below $100/t, about $88/t as of August 16,
marking the lowest level since November 2022, with the year-to-date average in
2024 thus far being $109/t.
After retaining resilience early this year,
iron-ore prices have been trending downwards throughout the year as weak
mainland Chinese demand shows no signs of reversing.
“We expect negative sentiment over the
sluggish mainland Chinese property sector, the downfall of which now looks
irreversible, to remain, further capping prices,” BMI
said.
BMI’s 2024 price
forecast of $110/t suggests that the company expects prices to improve slightly
from current levels towards the end of the year, leaving room for small upside,
though contingent upon stimulus announcements from China.
On the demand side, steel production in
China and therefore demand for iron-ore remained sluggish, with property sector
weakness adding to the “grim” picture, BMI said.
The company pointed out that, from January
to June, China's production of crude steel decreased by 1.1% year-on-year,
while production in June edged slightly higher by 0.2% year-on-year, according
to the World Steel Association.
The domestic steel industry has been facing
a continued setback, with the steel Purchasing Managers’ Index (PMI) falling to 42.5 in July, down from 47.8 in June,
highlighting a decline in steel sector activity.
Dipping steel production, with the
sub-index dropping 7.4 points to a four-month low of 38.5, as well as plunging
new orders, which fell to 40.3 in July from 49.4 in June, contributed to the
bleak outlook.
BMI noted that China's overall
manufacturing PMI remained in contractionary territory for the third
consecutive month in July, with a reading of 49.4, compared with 49.5 in June.
Additionally, major steel producer Baowu
Steel highlighted in August that the domestic steel sector remained in crisis,
which was likely to be more prolonged and severe than previous downturns.
Contrasting with the lagging steel sector,
China's imports of iron-ore grew by 6.7% year-on-year in the first seven months
of 2024, though likely adding largely to inventories, signalling that domestic
consumption remains muted.
“In a display of weak domestic demand,
iron-ore inventories at China's ports have continued a strong build-up, rising
by 31% year-to-date to 149.6-million tonnes as of August 16, which has the
potential to place a cap on prices in the coming months.
"We expect mainland Chinese iron-ore
demand to remain lacklustre, given the ongoing challenges within the domestic
property sector,” BMI said.
The firm’s country
risk team believes that China's housing downturn is likely to last years,
driven by an oversupply amid waning speculative demand.
Meanwhile, developers faced a formidable
credit crunch and repairing the sector's balance sheet was expected to take
years, BMI added.
Additionally, the firm said that genuine
homebuyers were likely to stay away owing to falling prices, stretched
valuations and the risk that developers may not complete their homes.
The ongoing property downturn in China
still shows little sign of reversing, with investment in the real estate sector
declining by 10.2% year-on-year over January to July, after falling by 10.1%
year-on-year during the first six months.
Outside of China, steel production and
demand for iron-ore remain muted as of the first half of the year. According to
the World Steel Association's report, global crude steel production stayed
stable from January to June, with June registering a slight year-on-year growth
of 0.5%.
Steel production in India, Türkiye and Iran outperformed, rising by 7.4%, 16.9% and 5.9%
year-on-year respectively during the first half of 2024. Germany and Brazil
also saw a rise in steel production during January to June, with growth rates
standing at 4.5% and 2.4% year-on-year respectively.
However, steel production in other key
markets, including Japan, the US, Russia and South Korea remains in contraction
as of the first half of the year. During January to June, Japan and the US
registered year-on-year steel production growth rates of -2.6% and -2.4%
respectively, while steel production in Russia and South Korea declined by 3%
and 6.4% year-on-year respectively.
On the supply side, BMI said that iron-ore
production remained healthy across major miners. Iron-ore shipments and
production broadly increased for most majors, with miners aiming to maintain
their production levels.
Mining major BHP saw record iron-ore
production in the 2024 financial year ended June 30, of 260-million tonnes, a
1% year-on-year increase, and expects 2025 financial year production to come in
at between 255-million and 265.5-million tonnes.
Fortescue achieved record iron-ore
shipments of 53.7-million tonnes in the fourth quarter of the 2024 financial
year, registering 10% year-on-year growth, bringing total 2024 financial year
shipments to 191.6-million tonnes and setting the 2025 financial year total
shipments guidance at 190-million to 200-million tonnes.
Vale's iron-ore production in the first
half of the year increased by 4.1% year-on-year to 151.4-million tonnes, with
the miner reinforcing its confidence in the full-year production coming in at
the upper end of its previously set guidance of 310-million to 320-million
tonnes.
Lastly, Rio Tinto's 2023 iron-ore shipments
rose by 3% year-on-year to 332-million tonnes, with the miner setting its 2024
guidance at between 323-million and 338-million tonnes.
Looking beyond this year, BMI expects
iron-ore prices to follow a multi-year downtrend.
“We maintain our view that iron-ore prices
will consistently trend downwards, as cooling steel production growth and
higher iron-ore output from global producers will continue to loosen the
market. In the long term, we forecast prices to decline from an average of
$110/t in 2024 to $78/t in 2033. While significantly lower than $156/t in 2021,
the $97/t yearly average that we forecast for 2024 to 2028 would still be
higher than the 2016 to 2020 average of $78/t,” the
firm said.
BMI said it expected China's slowing demand
growth to be the main driver of lower prices, a trend that was now already in
its early stages.
“A structural shift away from industrial,
steel-intensive sectors towards services and less-steel-intensive
infrastructure will have a negative impact on iron-ore demand. This shift in
China’s economic growth trajectory is expected to
depress steel consumption and production growth rates,” the firm said.
BMI noted that, while domestic steel
production was allowed to significantly outstrip steel demand over the past
decade, with the resulting surplus exported, the firm expected production
growth to be brought closer in line with domestic consumption patterns in the
coming years.
“Based on these forecasts, we expect China’s yearly iron-ore consumption to peak before the end of the decade
while iron-ore demand across Asia more broadly will continue to grow, but at a
very slow rate,” BMI said.
Consistent with this shift, the firm
expects an increased focus on low-carbon steel globally, which requires much
less iron-ore and is produced at electric arc furnaces, compared to the current
blast furnace production model that requires high levels of iron-ore and coking
coal, which is highly polluting.
Heightened pressures on environmental
conservation through regulatory and voluntary commitments are expected to be an
impetus to driving changes for greener steelmaking.
BMI noted that, as the EU's Carbon Border
Adjustment Mechanism takes effect, a growing number of startup steelmakers have
started to create green steel for industrial use.
In the EU, all major steelmakers are
involved in either research or pilot projects to test low carbon steel
production processes.
The US may examine similar trade measures
to foster domestic investment in greener steel production as well. These trends
also pose further downside risks for BMI’s long-term
iron-ore demand forecast, such that demand may peak sooner than 2027 to 2028.
Risks to BMI’s
current price outlook are currently skewed to the downside.
“Iron-ore prices will head even lower than
our current expectations if China’s economic momentum
remains weaker than expected in 2024. On the upside, a stronger recovery in
China’s property sector will be the major influencer
driving demand and supporting iron-ore prices. Supply constraints at producing
mines could also push prices higher,” the firm said.
BMI added that unforeseen weather
conditions in the wake of La Niña developing towards the end of the year, as
well as labour and energy issues, could pressure key producing markets,
including Australia and South America.