Price crunch to continue as iron ore falls below $US90

Iron ore

The price of 62 per cent Australian iron ore fines has dropped below $US90 ($123) per tonne for the first time since May 2020, marking a new low for the iron ore industry.

The price at China’s Qingdao Port fell to $US89.1 per dry metric tonne on November 10, suggesting ‘sustaining weak inquiries’ had caused the continued decline.

Enduring lows in September, the iron ore price returned to above $US130 per tonne in October.

However, it has plummeted since and Fitch Solutions has suggested that the crunch will continue into 2022.

“The iron ore rally has ended and prices have collapsed, as per our expectations, and we expect prices to remain under pressure in 2022,” the credit rating agency said in a recent report.

“Demand strength from Chinese steel producers peaked in H121 (first half of 2021), and we expect demand to remain weak going forward with a concomitant improvement in global supply.”

Fitch Solutions has forecast the slide to result in average iron prices of $US90 per tonne in the 2022 financial year and  suggests it’s only going to get worse from there.

“Over the longer term, we expect iron ore prices to remain a multi-year downtrend, with prices forecast to decline from an average of $US155 per tonne in 2021 to $US65 per tonne by 2025.”

Fitch Solutions said there’s a worrying trend occurring as the world eases back from the construction surge that coincided with a pandemic recovery.

“While China’s energy crunch has started to ease and production curbs on steel are also being lifted gradually, we do not expect the strong demand impact that had stemmed from stimulus to return in 2022 as construction projects reach completion and the pipeline of new projects lessens,” the report stated.

The instability of China’s property market is also set to cloud iron ore demand, principally demonstrated by the current financial difficulties of Chinese property developer Evergrande.

“In the event that Evergrande’s difficulties spark contagion for other Chinese property developers that may not be directly exposed, iron ore demand would be further hampered,” Fitch Solutions stated.

“Additionally, Evergrande has been trying to sell its existing inventory of properties at a discount in an attempt to raise funds to meet its obligations.

“This could result in lower property prices for the wider sector, which could weigh further on the profitability of the real estate sector over the coming months.

“This could also reduce demand for metals used in construction as developers lose the ability to pay for raw materials at high prices.”

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