Analysts predict that iron ore prices will continue to decline due to a slowdown in steel production in China over the winter months.
The benchmark iron ore spot price was down 4 percent on Tuesday (September 19) at $68.85 per tonne; that’s an 8-percent decline from the previous week.
Analysts are predicting that iron ore prices will continue to fall on the back of slowing Chinese retail sales, industrial production and fixed asset investment data.
“Some of the August high frequency data points have been a bit lacklustre, certainly suggesting that we could see a modest tweaking of growth expectations,” IG Chief Market Strategist Chris Weston told The Australian on Monday (September 18).
He added, “I’d say that given where we are and the trends we’re seeing and the failure to hold key level are probably the further downside risks here.” Predictions vary, but Barclays (LSE:BARC) said earlier this year that iron ore prices could reach $50 by Q4.
Production cuts at Chinese steel plants may also hurt iron ore prices — the government plans to allow for output cuts of up to 50 percent in the country’s Hebei province in the coming months.
Hebei is China’s top-producing steel city, and the production cuts are an attempt to curb pollution during the winter heating season, which begins in November. They will also help the country reach its 2017 air-quality targets.
Board members of the Reserve Bank of Australia discussed iron ore prices during a September policy meeting and noted that they too expect prices to fall.
They commented that while iron ore prices have been supported at higher levels due to sustained steel demand from China, they will likely decline moving forward due to the recent “extended period of strong investment” in global iron ore supply.
The board members also said they believe that Chinese steel production per capita is likely close to its peak, meaning that growth in Chinese steel production is unlikely to “add much to global demand for iron ore in the future.”
That said, they do see India potentially having “a noticeable effect on commodity markets as investment in residential construction and transport infrastructure increase[s].”
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.