Iron ore prices to average US$85 a tonne in 2023: Office of the Chief Economist

The iron ore price outlook in 2023 relies on China's fiscal stimulus and property market, says the Australian Government's commodity forecaster, the Office of the Chief Economist (OCE).

"A stabilisation of China’s real estate sector, in combination with the country’s substantial infrastructure stimulus and only modest supply growth from Australia and Brazil, is expected to provide support to steel and iron ore prices over the outlook period," the OCE said in its December quarterly report.

The analysts forecast iron ore prices to average US$85 a tonne in 2023. This represents a slight decline compared to Qingdao prices, which averaged around US$90 a tonne in the December quarter 2022. But a sizeable decline from current Singapore iron ore futures, which sit at US$109.1 a tonne.

December quarter review: Two tales

The OCE highlights two diverging data points for iron ore demand.

In the September quarter, China's iron ore imports rose 7.3% quarter-on-quarter and 2.0% year-on-year to 287 million tonnes, backed by a recovery in China's iron ore inventories.

Conversely, the OCE notes how "iron ore inventories at steel mills remain low compared to recent years, and planned purchases by mills have persisted at subdued levels in recent months."

The lack of optimism around the end users reflected "deteriorating Chinese steel margins", driven by elevated energy and raw material costs as well as falling steel prices.

Eyes on China's stimulus

2023 will be another tightrope year for iron ore amid continue weakness in China's residential property market, which fell at double digit rates in the first 10 months of 2022 and subdued construction activity, according to the OCE.

"In October, China’s infrastructure investment (3-month average) was around 15% higher year-on-year, and is expected to boost construction activity, and steel and iron ore demand through 2023," noted the OCE analysts.

Prices to fall further in 2024

Iron ore prices are projected to fall further towards 'longer-run levels' in 2024. Key factors weighing on the steelmaking ingredients' outlook include:

• Modest growth in blast-furnace steelmaking from major producers such as the EU, US and China

• Slower growth in blast furnace steelmaking capacity as the world transitions to a low emissions environment

• Rising supply from major producers in Australia and Brazil

The analysts estimate prices to fall from around US$100 a tonne in 2022 to an average around US$75 a tonne by 2024.

Iron ore price outlook (Source: Office of the Chief Economist)