Iron ore prices have rallied into the year-end. But the volatility is bound to continue.Credit:Bloomberg
“Iron ore demand will broadly,gradually decline,” said CITIC Futures analyst Zeng Ning. “The property industry is rather weak,steel consumption is likely to contract and more mills will use scrap to reduce emissions.” The brokerage expects China’s steel output to fall by 50 million tonnes in 2022.
The country buys about 70 per cent of the world’s seaborne iron ore and is set to produce 1.03 billion tonnes of steel this year,more than half of global supply.
In terms of what this all means for prices,UBS expects iron ore to average $US85 a tonne in 2022,while Citigroup sees $US96. Capital Economics,meanwhile,predicts $US70 by the end of next year. Futures in Singapore have averaged $US157 so far in 2021,and traded around $US128 on Tuesday.
Among bright spots are potential fiscal stimulus in China,possible further easing in monetary policy,and more support for the property industry,while steel output could rebound when limits are removed after the Winter Olympics. The view at Macquarie is that iron ore could spike in the first half of next year because current steel production levels in China look “unsustainably low.” Output in November slumped to the smallest for the month since 2017.
‘Dangerous variable’
Still,there are a “lot of uncertainties,” said Tomas Gutierrez,an analyst at Kallanish Commodities,who expects prices to trend below $US100 next year. The global growth outlook is mixed,while there could be inflationary pressures from energy prices and supply disruptions. The Omicron variant of the coronavirus,now detected in the country,is also a “dangerous variable considering China’s zero-tolerance approach to COVID,” he said from Shanghai.