SYDNEY (Reuters) – Australia on Monday said it expects iron ore prices to average $51.50 a tonne this year, down 20 percent from 2017, because of rising global supply and moderating demand from top importer China as its steel sector shrinks.
The government projection is out of step with some private forecasts, with UBS and Citi calling for iron ore prices to average around $64 a tonne in 2018 – flat on 2017’s $64.30 – with the market proving surprisingly resilient.
Spot iron ore, currently around $75 a tonne, last traded below $52 in June 2017, but Department of Industry, Innovation and Science resource and energy analyst David Thurtell pointed to an expected contraction in China’s steel industry. “We’re still comfortable with where our forecast sits,” he said.
The world’s top three mining companies, BHP and Vale rely heavily on iron ore sales for the bulk of their revenue despite efforts to diversify more into other industrial raw materials, such as copper, aluminium and coal.
Brazil-based Vale is planning to lift iron ore exports 7 percent in 2018 to 390 million tonnes. In Australia, Rio Tinto and BHP, along with Fortescue Metals Group aim to add about 170 million tonnes of new capacity over the next several years. The forecast price decline will continue into 2019, when the steelmaking raw material will average only $49 a tonne, the department said in its latest commodities outlook paper.