(Bloomberg) — Top iron ore shipper Australia predicts elevated prices will stay for the rest of 2020 as Chinese demand strengthens and supply is slow to increase.
Iron ore surged past $100 a ton in the first half after disruptions in Brazil curbed shipments just as Chinese mills churned out a record volume of steel. Prices are expected to largely hold at current levels over the remainder of the year, albeit drifting slightly lower in the second half, the Department of Industry, Science, Energy & Resources said in a quarterly report. It boosted the forecast for this year by almost 30% and also raised its 2021 outlook.
“Chinese demand for iron ore has thus far proven to be relatively robust, despite the impact of Covid-19 and the shutdown of significant sectors of the Chinese manufacturing industry,” the department said. “At this stage, it is not expected that Chinese demand will fall significantly, though the ongoing decline of consumer spending in OECD nations will increase the dependence of the Chinese steel industry on domestic stimulus measures.”
Iron ore is Australia’s most-valuable export, with the rally in prices and a weaker domestic currency pushing earnings to a record A$103 billion in the 2019-20 financial year, according to the department. It’s also aided miners BHP Group and Rio Tinto Group, while Fortescue Metals Group Ltd.’s stock has jumped more than 30% this year.
Beyond this year, prices are set to retreat as supplies are restored, though a significant global economic recovery expected in 2021 will create a supportive price floor, the department said. Its forecast of $71 a ton free-on-board next year compares with a March forecast of $60.50. Free-on-board prices are typically $7 to $10 less than spot prices.
Australia’s iron ore exports are expected to total 866 million tons in 2020, down from a March forecast of 892 million, and increase to 903 million tons next year.
China’s imports are expected to increase to 1.12 billion tons this year, though that estimate is lower than a previous forecast for 1.3 billion. Purchases are expected to climb in 2021 and reach 1.3 billion in 2022.
In the steel market, signs are positive in China as inventories decline and production increases. Much of the output growth depends on anticipated stimulus and, with export markets in decline, growth measures will remain important to the country’s steel market potentially into 2021. World steel consumption is expected to contract 6% this year, due to the coronavirus and slowing economic growth, before expanding 5% in 2021.
©2020 Bloomberg L.P.