Iron ore to average US$90 a tonne in 2023: Office of the Chief Economist

The Australian Government's commodity forecaster, the Office of the Chief Economist says weaker demand and more supply will push iron ore prices to around US$70 a tonne by 2024.

The Office of the Chief Economist (OCE) publishes a quarterly resources and energy report to forecast the value, volume and price of Australia's major commodity exports.

The backdrop

Iron ore prices fell around -20% in the September quarter as growing economic growth concerns alongside weakness in China's residential property sector weighed on demand for the steelmaking ingredient.

Source: Office of the Chief Economist

China's property sector: Still a drag

"The boost in new infrastructure investment and looser credit conditions in China in recent months are expected to provide some support to iron ore demand over the outlook period," according to OCE.

"China is now expected to spend more than 7 trillion yuan (US$1 trillion) in the 2022 calendar year."

"However, until now these policies have been unable to fully counteract the ongoing weakness seen in China’s residential property sector," flagged the OCE analysts.

New residential housing starts and new home sales have continued to post double digit percentage declines year-on-year to August - which is of particular importance as property construction is China's biggest consumer of steel.

Balanced supply outlook

Iron ore shipments for the first half of 2022 for Australia, Brazil, South Africa and Canada - representing more than 80% of global seaborne supply - was down -1.3% compared to the prior period.

The decline largely reflected weaker export volumes from Brazil's largest producer, Vale, which faced weather disruptions and licensing issues.

"The global seaborne iron ore market is expected to remain relatively balanced over the outlook period, with growth in exports from both Australia and Brazil offsetting falls from mid-tier exporters such as India," said the OCE report.

"However, growing macroeconomic headwinds — such as weakening global growth, energy shortages and further COVID-19 outbreaks — present a mounting risk to steel demand growth over the outlook, which would have repercussions for iron ore demand."

Weaker iron ore prices to come

Iron ore prices are forecast to average around US$110 a tonne in 2022.

The OCE upgraded its iron ore outlook for 2023 and expects prices to average US$90 a tonne compared to US$85 in its June quarterly report.

By 2024, prices are forecast to average US$70 a tonne.

Source: Office of the Chief Economist