​Iron ore prices predicted to fall further

Iron ore prices have been forecast to continue their decline, with expectations of it slumping to as much as US$70 per tonne, following falls to a new low this week.

The price of iron ore fell to approximately US$77 per tonne on Tuesday, according to SteelIndex’s tracking of the Northern China CFR iron ore benchmark.

Unfortunately for the commodity this is not unusual news.

The commodity has been on consistent downwards trend this year, after it crashed into double digit territory in May from its historical triple digit highs, the first time it has fallen that low in two years.

It reached a new nadir last month after trading below US$80 per tonne, marking a 35 per cent loss since the start of the year, although it quickly recovered; however this new low is not expected to be the bottom of the trough with data from Morningstar predicting an eventual slide to US$70 per tonne.

New research from the analyst firm has forecast the metal to reach its lowest point in 2017, falling to US$70 per tonne before recovering to a more stable US$75 per tonne by 2020, due to Chinese iron ore miners slowing output, the Sydney Morning Herald reports.

This has been echoed in recent IBISWorld research, which states “the industry is expected to grow at a slower rate over the next five years through to 2019-20”, adding that “iron ore prices (in US dollars) are expected to decline slightly over the five years through 2019-20 [with] this decline expected to stem partly from higher production and output from Australian mines over the next five years”.

It also pointed to an increase in output from Brazil and West Africa flooding the market as contributors to the price slump.

According to Anglo American, this global glut of iron ore will keep prices at these five year lows for a minimum 12 months, Bloomberg reports.

However Australian iron ore, due to its high quality, will still be in demand.

This slide for the iron ore sector has not been a surprise for the industry or the market, with the Bureau of Resources and Energy Economics stating in its September report that prices will continue to be strained.

“A rapid increase in iron ore supply combined with moderating growth in China’s steel production have pushed iron ore prices lower in 2014. Prices have fallen nearly 40 per cent down from around US$130 a tonne (CFR China) in January to US$82 a tonne in September,” BREE said.

While the group said iron ore price volatility is not uncommon, this difference this time is the oversupply flooding the market.

In Australia alone over 200 million tonnes of new ore has begun export at the same time as China stopped stocking up on the commodity.

Credit market conditions in China also affected end-user demand for steel, BREE stated, causing a sluggish growth rate.

While BREE expects iron ore prices to rebound from current lows, it said highs of $US 130 are unlikely to be repeated any time soon.

However it was more optimistic than most, predicting that iron ore prices are forecast to average US$94 a tonne for the full year 2014, down only 26 per cent compared to 2013.

“Over the next five years, iron ore prices are projected to average between US$90 and US$95 a tonne,” it said.

Goldman Sachs was less optimistic, holding the view that it will hover around an average price of US$ 80 per tonne.

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