Australia govt forecast: Iron ore price below $100 for 5 years

Australia govt forecast: Iron ore price below $100 for 5 yearsAfter weeks of relentless selling benchmark iron ore prices soared on Monday.

Northern China 62% Fe imports tracked by The SteelIndex jumped nearly 4%, lifting the steelmaking raw material off a string of five-year lows set this month.

Unlike previous recoveries there was no follow through and by Wednesday the price of iron ore had slid back to $84.20, a classic dead cat bounce.

The market continues to fret about a flood of new supply just as demand in top consumer China slows and the price of iron ore remains nearly 40% weaker than at the start of the year.

Business Spectator reports Australia's official forecaster, the Bureau of Resources and Energy Economics, on Wednesday had some good news about the longer term prospects for the iron ore price.

BREE expects iron ore prices will recover to a trading range of $90 – $S95 a tonne over the next five years.

In the short term there could be more pain though says executive director, Wayne Calder, and as suggested by some analysts there could be dips in the price to the low $70s:

“It could go down that far, but we couldn’t see it being sustained at that sort of price level. We still expect a downturn in price. The peaks won’t be as high and the troughs will be a bit lower.”

The brighter medium term outlook BREE says is thanks to continued steel production rises in China, which consumes more than two-thirds of the seaborne trade.

Steel output in China, which already forges as much steel as the rest of the world combined, is forecast to expand to 900 – 950 million tonnes a year from the current 800 million tonnes.

Calder also expects loss-making high-cost Chinese mines, which have remained in production thanks to local government support "to close over the northern winter" and that mines in Iran, Ukraine and Peru supplying the seaborne trade would start to exit the market altogether.

Image by Tom Rodgers