Iron Ore Price To Dip 27% by Year-end

For BHP Group, Rio Tinto Limited, and Fortescue Metals Group Limited, the fluctuating iron ore price is a major setback which can and will impact their company’s profitability. Iron ore which is the raw material in steel-making, contributes greatly to their operation, and the slumping price of iron ore is expected to pummel their core profits. 

According to the Commonwealth Bank of Australia (CBA), the price of iron ore will finish the year at US$100 per ton. Last Thursday, July 28, 2022, the BHP Group showed an update on their production for the fourth quarter of this year and the full year. The report stated that the company showed that they have gotten an average price of US$113.10 per ton for the fiscal year 2022 for its iron ore. The figure however is below 13% as compared to last year’s figure of US$130.56 per ton.

There are lots of speculations as to what the iron ore price will be in the future and where it is heading from here. And because of this, let us take a quick peek to see what the forecast for iron ore will be. Goldman Sachs, a leading broker for the steel-making ingredient provides a quick forecast:

Where is the steel-making ingredient going?

Iron ore is the main ingredient for our steel, and a leading iron ore broker stated last week that their analysts anticipate the iron ore price to dip a bit next year.

Goldman Sachs anticipates a price of US$120 per ton for benchmark iron ore 62% fine by this year. Their analysts also foresee a decline of almost 17% for the fiscal year 2023 which is about US$100 per ton. And in the table below, Goldman Sachs does not guarantee any increase in iron ore price but rather says that the price is expected to dive until 2026. And after this point, Goldman Sachs and its analysts anticipate a slight incline in the iron ore price.

Overall, the broker looks to believe that the peak of the iron ore price is behind us, for now, and expects a descending trend from hereon up to 2026.

Earlier, a credit rating agency had predicted that the iron ore price will hover above US$ 100 per ton until next year. They attributed this to the increased demand of China for this metal. In February this year, Fitch Solutions credited the demand of China for the iron ore price while the supply remained stable. Previously, Fitch Solutions said that the price of iron ore would plateau at US$90 this year, before dipping to US$75 a year later. However, this forecast was revised to US$120 per ton and US$110. 

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In a statement, Fitch Solutions stated that while they see some weakness in the price of iron ore in the coming days due to the Chinese crackdown, this will however be temporary. Fitch Solutions further stated that the iron ore prices will get some support from supply restrictions and increased demand from China, and due to these, the iron ore price will remain above its Pre-Pandemic price.

The government of China said that they are revitalizing stimulus towards the infrastructure industry as this was the sector that was greatly affected and faced with slower economic growth, forcing them to increase the demand for the metal.

Iron Ore Price Increased by 15% Over the Weekend

In related news, iron ore enjoyed some positive news, as the price for the metal increased to a four-week high. The price reportedly rose on the Dalian Commodity Exchange for the period covering July 22-29 by 14.8%. The cost of September futures for the metal used in steel making increased by almost 15% to $115.84 per ton at the NBU rate.

The January futures’ value showed a slight increase of 11%. The Financial Times report said that the Chinese central bank will offer $148 billion in loan assistance to developers to resume their projects that were stalled or stopped.

A leading news agency, however, confirmed its earlier stance that there was no clear signal nor intent from the Chinese government that they will be extending any support to the above-mentioned sector. Australia & New Zealand Banking Group Ltd., also reported that there was no clear indication from the Chinese government that they will provide help to the distressed sector.

Besides, they can scour and tap for an alternative source of the ore from Guinea’s Simandou deposit. The Guinea government has reportedly given the green light to jointly develop the infrastructure for the mine. The characteristic feature of the said mine is said to be of high quality. It stands at 65% Fe which is an import grade ore and is expected that when it is already functional and operational, it can now produce up to 100 million tons of iron ore annually. And as the profitability looked good, the 12 blast furnaces restarted their operation over the weekend.

Currently, the Asian giant is the biggest producer of steel all over the world. The country is also the world’s biggest importer of iron ore and is said to be the biggest consumer of it too.

Last year, steel producers in China reduced their production by as much as 3% compared to a year before to 1.03 billion tons. Also last year, the Chinese government have planned to reduce its steel production, which has affected the iron ore price. Industrial metals like Iron Ore and their prices are beholden to the policy set by the Chinese government. The easing of the several lockdowns and other Covid-19 restrictions imposed by China have at least boosted the demand for the metal. 
Will the price of iron ore continue its trend or will it suffer another setback? Also affecting the iron ore price is the war in Ukraine, which is the 4th largest exporter of iron ore in the world.