Iron Ore

Iron ore prices to plunge to US$80/tonne by 2025: Fitch

By Market Index
Wed 14 Sep 22, 11:30am (AEST)
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Source: Unsplash

Key Points

  • Fitch expects iron ore prices to average US$115 a tonne in 2022, down from its previous forecast of US$130 a tonne
  • Fitch expects iron ore prices to average US$100 a tonne in 2023, US$90 a tonne in 2024 and US$80 a tonne in 2025
  • Rio Tinto approves a new $3bn iron ore project in WA

Shares in ASX 200 iron ore stocks may reverse some of their recent gains, made on the back of iron ore futures again moving above US$100/t - on news of China’s property market stabilising - after Fitch Solutions downgraded iron ore forecasts this morning.

After witnessing weakening overall demand and tightening energy markets, Fitch has signalled an end to the higher price environment experienced during the first half of this year.

However, with prices at current levels, Fitch believes further short-term downside is limited.

US$115 a tonne in 2022

The ratings firm now expects iron ore prices to average US$115 a tonne in 2022, down from its previous forecast of US$130 a tonne.

While year-to-date prices have averaged US$121 a tonne, Fitch reminds investors that iron ore was trading in the range of US$95 to US$105 a tonne, while inventories in mainland China have picked up somewhat from June lows.

Fitch also notes that with operating costs and capital expenditure costs remaining elevated, miners have already started to react to recent price declines.

“… we believe that prices will receive some support from supply constraints through the fourth quarter and into 2023 as higher cost miners have in several instances reduced production in response to current price levels,” Fitch noted.

US$100 a tonne in 2023

Due to the recovery in inventories over the summer and synchronised slowdown in growth across major economies, Fitch believes the upside is also limited.

As a result, Fitch expects inventory levels to either maintain their recent gains or rise further as buyers capitalise on lower prices.

Fitch expects iron ore prices to average US$100 a tonne in 2023, US$90 a tonne in 2024 and US$80 a tonne in 2025.

Rio Tinto gives green light to $3bn iron ore project

Downgrades to iron ore prices today coincide with a decision by Rio Tinto (ASX: RIO) to approve a new US$2bn ($3bn) iron ore project in WA with joint venture partner and China's biggest state-owned steelmaker, Baowu.

Rio plans to take a 54% (US$1.3bn) stake in the Western Range iron ore project in WA's Pilbara, with Baowu owning the remaining balance.

Construction is expected to start early 2023 and initial production is expected to commence in 2025.

The Western Range iron ore project’s 25m tonne capacity is expected to support production of the Pilbara iron ore blend from Rio's existing Paraburdoo mining hub.

126.5m tonnes over 13 years

Given that Baowu has common ownership through the Chinese government with Chinalco - Rio's biggest shareholder with a 11.3% stake - today’s announced agreement is subject to approval from Australian shareholders at a general meeting on October 25.

Assuming approval is granted, Rio and Baowu will enter into an iron ore sales agreement at market prices covering up to 126.5m tonnes of iron ore over approximately 13 years.

This represents Baowu’s 46% interest in an expected 275m tonnes of production from Western Range through the joint venture.

Rio’s capital costs, previously included in capital expenditure guidance, is around US$9-10bn for 2023 and 2024 respectively.

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Rio Tinto's share price was down -2.48% at the open.

 

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