Iron ore prices are expected to average $110/mt FOB Australia in 2014 before dropping to around $103/mt in 2015, Australia's Bureau of Resources and Energy Economics said in its March quarter report Wednesday. By 2019, BREE expects prices to fall to around $87/mt due to growth in seaborne supply from new developments in Brazil and Australia.
The 2014 outlook of $110/mt was a downward revision from $119/mt in the December report.
BREE expects prices to average $111/mt over January-March and recover later in the year as a result of higher summer construction activity in China, which will support a rebound in steel demand.
"The continued increase in seaborne supply through 2014 and 2015 is forecast to drive spot prices lower, to an average of US$103/mt in 2015," BREE said. "Price fluctuations are likely to lower prices at times through 2015, but the high cost of China's domestic production is still expected to support a higher average price for the year.
"Any sustained period of CFR North China prices below $100/mt should result in higher cost Chinese producers closing down mines if China's announced market reforms extend to the iron ore industry," it added.
In 2013, iron ore spot prices averaged $126/mt FOB Australia, up 3.4% from 2012.
Australia's 2014 iron ore exports are forecast to increase 19% year on year to 687 million mt as a result of recently commissioned projects from Australia's iron ore majors.
Over 2015-19, BREE expects Australia's iron ore exports to rise at an annual rate of 4.4%, reaching 851 million by 2019.
BREE expects world steel production of 1.64 billion mt in 2014, rising to 1.79 billion mt in 2019, with higher output from China and India.
But around 30 million mt of steel production capacity in China is expected to close in 2014 out of an estimated 1 billion mt capacity.
Half of the shut capacity will be in Hebei province, which produces around a quarter of China's annual steel output. By 2017, BREE expects Hebei to have cut capacity to 60 million mt.
"Furthermore, the Governor of Hebei, Zhang Qingwei, has warned that any public official whom is found to be responsible for any additional tonnage of steel [or cement] making capacity will be fired," BREE said.
Over 2015-19, China's steel production is projected to grow at an average annual rate of 1.8% to 875 million mt by 2019.
