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Australia cuts iron price forecast 33% on ‘structural change’

Port Hedland, Australia

The iron ore price fell back to five-and-half-year lows on Monday as weak demand from top consumer China and a surge in supply continue to weigh on the industry.

The CFR 62% Fe 2% Al benchmark import price at the port of Qingdao tracked by The SteelIndex declined $1.50 to $69.20 a tonne, the lowest since June 1, 2009, proving Friday’s jump to above $70 was merely a blip on the long-term downtrend.

The price of the steelmaking raw material is down just under 50% since the start of the year.

According to the latest quarterly report from Australia’s Department of Industry more pain is to come.

The official forecaster of the world’s top exporting country cut its price estimate for 2015 by a third: iron ore prices would average $63 a tonne which compares with $94 a tonne forecast in September and $88 a tonne average this year.

The price used by the Bureau of Resources and Energy Economics is free-on-board Australia so for comparison add between $7 – $12 for the Chinese freight and insurance included price.

The research points to a structural shift has taken place in the trade of the steelmaking raw material, the top global commodity trade after crude oil at an estimated 1.39 billion tonnes a year:

“Since the move to spot pricing in 2009 seasonal price swings have been a regular feature in iron ore markets; however, 2014 has been characterised by a prolonged price decline without the seasonal rebounds seen in previous pricing cycles.

“This change in the pattern of prices is likely evidence of a structural change in the iron ore market.

“The recent surge in iron ore availability has reduced the supply risk steel mills in Asia previously faced and, subsequently, buyers are no longer stocking up ahead of periods usually affected by seasonal factors. As a result prices have not rebounded for any significant period of time in 2014.”