Supply discipline may be a major pricing factor for Iron Ore this year

UNITED KINGDOM January 17 2017 5:50 PM

LONDON (Scrap Register): Supply discipline is likely to be a major pricing factor for Iron ore this year, said The Steel Index.

Production curtailments in 2016 amongst the top three producers Vale, Rio Tinto and BHP Billiton, along with the Chinese financial stimulus package helped stabilize iron ore prices in the second half of 2016. The same three producers have scaled back their expansion targets for 2017. 

The outlook for China for the coming year remains up in the air as ever, with so much dependent on government policy. 

Chinese steel market sentiment slumped in early January ahead of the Lunar New Year holiday period at the end of the month, with expectations for long and flat steel product prices falling markedly, according to the latest S&P Global Platts China Steel Sentiment Index (CSSI), which showed a headline reading of 34.13 out of a possible 100 points. 

However, ex-China steel demand is expected to improve in 2017 as countries such as India and the US embark on large scale infrastructure projects, whilst economic growth in the EU slowly accelerates following a long period in the dol-drums. 

The Australian government’s commodities forecasting unit has upgraded its outlook for iron ore prices in 2017 to US$53/mt FOB (around US$59/mt CFR using current Australia-China freight rates) from US$44.8/mt previously. 

The 18% increase in the December Resources and Energy Quarterly report was attributed to stronger-than-expected iron ore prices in recent months on the back of higher metallurgical coal and steel prices. The Canberra-based unit sees some of the drivers of stronger Chinese steel consumption, such as residential construction, weakening this year. 

This will see steel consumption in 2017 falling 2% on last year to 683 million tonnes, while production will drop 2.5% to 775 million tonnes. Some steel capacity cuts, along with stronger iron ore exports out of Australia and Brazil, are expected to result in weaker iron ore prices. The government sees iron ore prices softening further from US$53/mt FOB this year to just under US$49/mt FOB in 2018.