The iron complex remained under intense pressure on September 17, 2021, with the spot and the paper again being flogged:

There was no movement in Dalain overnight as it is closed for holidays until Wednesday. A circuit breaker if one was needed.

My goal of $ 100 reached! Where next? UBS has more:

Iron ore to drop below $ 100 / t by year end

Prices for iron ore and metallurgical coal have been volatile over the past 3 months; the weakening of steel production in China has led to a sharp drop in iron ore prices (-45% since the end of June) while the supply disruption and the continuation of the Australian coal embargo on China led to a sharp increase in metallurgical coal prices (+ 150% since mid-May). We have reduced our iron ore price forecast for 2021-23 by about 10%, as we now expect the market to be in surplus from 2H21; we expect the price to fall below $ 100 / t by the end of 2021 and average to $ 89 / t in 2022 (vs consensus of around $ 132 / t). We are raising our coal price forecast by more than 30% in 2021/22 to $ 190 / t following the strong spot increase; we still expect prices to normalize to around $ 150 / t by 2023 as steel demand slows and supply adjusts.

Iron ore: material reduction for Chinese steel production driven by the weakness of the real estate market

Our real estate team in China recently lowered housing starts to -9% in 2021 and -7% in 2022, with the market slowing sharply from July, when tightening measures began to affect sales (note). As a result, our China Materials team reduced demand and production of steel in China by around 5% in 2021-2023, expecting materials to slow down in 2 hours; we expect China’s steel production to peak in 2022/23 at ~ 1.07 billion tonnes. We are updating our iron ore model for the new forecast of smelting ore production and iron ore supply; the maritime market is now expected to be in surplus from 2H21 (previously a small deficit in 2021); we expect this to translate into increased inventories and faster price normalization up to the 90th percentile on the cost curve (currently ~ US $ 65 / t).

Where do iron ore prices end?

As illustrated below, iron ore prices followed the 90th percentile of the Use Value Curve (VIU) in 2016-2018 when the market was in surplus (before the Brumadinho tragedy in January-19). Prior to that (in 2014-2015), when the market worried about Chinese credit and a potential hard landing, the price of iron ore followed the 75th percentile of the VIU curve. WoodMac’s iron ore use value curve in 2Q21 shows that the 90th percentile is broadly flat q / q at $ 63 / t; however, it is still significantly lower than the 2014 average of $ 107 / t (note).

Yeah. The only point to add is that as the price goes down, the average equilibrium cost will also go down, so we may need to go down even more in the near term.

David Llewellyn-Smith is Chief Strategist at MB Fund and MB Super. David is the Founding Editor and Editor-in-Chief of MacroBusiness and was the Founding Editor and Editor-in-Chief of Global Economics of The Diplomat, Asia-Pacific’s premier geopolitical and economic portal.

He is also a former gold trader and business commentator for the Sydney Morning Herald, The Age, ABC and The Business Spectator. He is co-author of The great crash of 2008 with Ross Garnaut and was editor-in-chief of the second Garnaut’s Climate Change Review.

Latest articles by Maisons et Trous (see everything)