Posted on 21 Dec 2022
The Australian government's commodity forecaster has lowered its iron ore price forecasts on weaker demand because of low global economic growth and higher Australian exports than previously expected.
The Office of the Chief Economist (OCE) forecast prices will average $102/t in 2022, $85/t in 2023 and $73/t fob Western Australia in 2024 in its December Resources and Energy Quarterly (REQ). This would keep higher cost producers in Australia closed, with very few that use road haulage likely to be profitable at the $85/t price forecast for 2023.
The most marginal iron ore mines, many of which were started opportunistically to take advantage of record pricing in the first half of 2021, were closed during September-October 2021. Other larger and less marginal mines may also be forced to close at prices around the $85/t predicted by OCE for 2023, with mid-size mining firms such as Mineral Resources looking to adjust production when prices slipped below $90/t for 62pc Fe in October.
The OCE in its latest REQ downgraded its price expectations for 2022 and 2023 from the previous September report. But it increased its Australian export expectations for this year to 885mn t from 882mn t, as exports continued to grow with tie-in activity at major mining replacements completed by large-scale Pilbara producers BHP, Rio Tinto and Fortescue Metals.
The OCE cut its 2023 and 2024 Australian export outlook as the expected lower prices delay or derail major projects planned by higher cost producers and could see the lower cost producers boost production more slowly. It has increased its Chinese iron ore consumption forecast in 2023 as Covid-19 lockdowns ease and Beijing looks to stimulate its economy.
A widespread recession and move towards green steel are risks to global iron ore demand in 2023 and 2024, according to the December REQ.
The OCE's 2022 average iron ore price forecast of $108/t is lower than the average ICX iron ore price for 62pc Fe ore that Argus assessed at around $120.27/t cfr China for the year to 20 December but above the $104.25/t for 58pc Fe. The average grade of Australian ore this year remains below 62pc Fe. Argus last assessed the ICX at $110.15/t cfr Qingdao on 20 December, down from a high for 2022 of $160.10/t on 1 April.
| Iron ore forecasts | (mn t) | |||
| 2021a | 2022e | 2023f | 2024f | |
| Global | ||||
| World trade | 1,626 | 1,591 | 1,623 | 1,679 |
| Imports | ||||
| China imports | 1,126 | 1,108 | 1,131 | 1,121 |
| Japan imports | 113 | 108 | 110 | 111 |
| EU imports | 94 | 74 | 79 | 82 |
| Exports | ||||
| Australia exports | 871 | 885 | 908 | 933 |
| Brazil exports | 357 | 347 | 362 | 387 |
| Nominal spot prices ($/t) | ||||
| Dec '22 REQ | 143 | 102 | 85 | 73 |
| Sep '22 REQ | 143 | 107 | 91 | 72 |
| June '22 REQ | 143 | 114 | 84 | 70 |
| Source: OCE | ||||
| a = actual, e = estimate, f = forecast | ||||
Source:Argus Media
