This year’s tightness in the iron ore market looks likely to persist, anchoring benchmark prices around $70/mt over the next couple of quarters, analyst ANZ Research said in a report.
In addition, China’s supply-side reform measures should see demand for high-grade ore remain strong, it said.
Tightness in the market has been exacerbated by production shortfalls in the iron ore industry, commodity strategists Daniel Hynes and Soni Kumari said in the report.
“Overall, we now expect the global seaborne trade to grow by only 10 million mt in 2018. This is the second lowest increase in exports over the past two decades,” they said.
Various issues have led to “a host of production cuts around the world,” the ANZ analysts said.
“Low prices for low-grade iron ore producers have continued to see operations close or reduce output,” they said, citing the impact on smaller Australian mines such as Koolyanobbing and Koolan Island and the Tonkolili mine in Sierra Leone.
“These production issues have largely offset expansions at the majors, resulting in little if any net growth in seaborne supply,” they said.
Steel demand from China’s property and construction sectors should remain robust as the country’s authorities look to support economic growth, while at the same time China’s drive to reduce the impact of heavy industries on the environment is likely to quicken the pace of permanent closures at steel mills, the commodity strategists said in the report.
“We estimate that an additional 16 million mt of crude steel capacity could be cut in Q4 2018 and Q1 2019. This comes amid an improving backdrop for steel demand. The pace of contraction in infrastructure investment slowed in September. We expect a recovery in infrastructure investment in Q4 2018, with growth likely to rebound to 5% year on year,” Hynes and Kumari said.