Steel Products Prices North America

Chinese Iron Ore Prices Impacted by Excess Supply

March 27, 2014

Spot iron ore prices in China have been in a state of fluctuation having come down from $122.60/dmt at the beginning of the year to the current level of $111.80/dmt on 62% Fe. The economic slow down in China and the over abundance of ore inventories in China coupled with banks cracking down on iron ore as a source of collateral has pressured prices.

The Bureau of Resource and Energy Economics (BREE), Australia’s Resource Forecaster, joined the ranks of Standard Chartered and Goldman Sachs Group Inc. by forecasting lower prices for iron ore in their March quarterly. They expect spot prices to average around $110 per ton this year, a 7.5% decrease from the $119 per ton in the previous forecast. This is a 30% drop in price from 2013’s average. They expect spot prices to average $110 per metric ton FOB Port of export for this calendar year.

Export growth is expected for Australia due to the increase in mines in 2013. The mines are expected to produce 687 million metric tons this year with an anticipated 749 million metric tons for 2015, according to BREE.

The price drop during such an intense period of high supply, according to BREE’s executive director Bruce Wilson, reflects the changes during a normal commodity cycle. “Large surge in demand over several years, principally from China, but not just in China, led to record investment and construction,” Wilson stated. “Supply has expanded, demand continues to hold up fairly strongly, therefore the sort of logical and natural outcome of that is for prices to decline.”