(MENAFN- Gulf Times) Iron ore is in for a bumpy ride in 2018, according to the world's largest exporter, which warns that the commodity may be whipsawed as investors and users navigate the cross-currents thrown up by China's efforts to manage steel production and rising global mine production.
While prices will average $52.60 a metric tonne over the full year, they may be higher in the first half as China relaxes curbs on steel output, aiding demand, before easing in the second, Australia's Department of Industry, Innovation and Science said in a quarterly report yesterday.
Last year, benchmark spot prices averaged $71.36 after trading between almost $95 and just above $50.
'The iron ore price is expected to experience some ongoing volatility in early 2018, as the market responds to uncertainty regarding the impact of winter production restrictions on iron ore demand, the government forecaster said. Beyond the first six months, the price is set to drop on growing supply from low- cost producers and weaker steel output in China, it added.
Iron ore miners including BHP Billiton, Rio Tinto Group and Vale SA, as well as users and investors are weighing the impact of unprecedented steel supply curbs in China, which were imposed by policy makers this winter to battle pollution.
While the clampdown has resulted in an initial drop off in steel output, that's expected to reverse with a vengeance when the curbs are relaxed in spring. The new rules have also aided consumption of less-polluting, higher-grade ore, a trend that the department expects to persist.
'It is likely that there will be robust growth in steel production and iron ore demand after the winter production restrictions are lifted, according to the department, which makes projections for free-on-board prices. 'However, beyond the first half of 2018, the iron ore price is forecast to decline.
As China manages its mammoth steel industry, iron ore supplies will go on rising. Australian exports will jump to 880mn tonnes this year and 894mn next year, from 834mn in 2017, the department said, while Brazilian cargoes rise to 400mn tonnes this year and 424mn in 2019 from 384mn last year. Over the same period, China's imports will remain flat as Europe, India and South Korea buy more, according to the forecaster.
The outlook from the department is similar to Australia & New Zealand Banking Group's view that iron ore will hold firm in the opening months before easing off in the second half.
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