【SMM Iron & Steel Analysis】With supply being released and demand stagnating, Can Iron Ore Prices Hold Steady?

2025 Iron Ore Market Review:

The iron ore market in 2025 did not experience the widespread collapse predicted by some pessimists. Instead, it showed an "N-shaped" trend of "rising lows and constrained highs." Overall, the price fluctuations of iron ore in 2025 narrowed significantly compared to the previous two years. Starting at the beginning of the year, market sentiment was boosted by the Central Economic Work Conference at the end of 2024 and the anticipated issuance of trillions of yuan in special government bonds. At the same time, supply from Australia and Brazil faced more frequent cyclone and rainy season disruptions than in previous years, leading to a short-term drop in iron ore shipments and arrivals. The resulting tighter supply-demand balance pushed prices up to around $107/ton. However, the slow pace of resumption of work and production after the Spring Festival, coupled with lower-than-expected recovery in hot metal output, led to a price correction starting in March.

Continuing the trend from the end of the first quarter, the overall price of iron ore in the second quarter trended downwards, hitting its lowest point of the year at the end of June, briefly falling below the $100/ton mark to a range of $93-95/ton. The main driving factors here were the failure of the market's "Golden March, Silver April" expectations, and the subsequent imposition of tariffs by the United States, which squeezed finished steel prices, leading to a decline. Steel mill losses began to widen, hot metal output dropped from its peak, forcing a reduction in raw material prices.

Entering the third quarter, iron ore prices began to rebound. In China, measures proposed in July to combat "involution" (over-competition) in the steel industry, coupled with record-high steel exports in August and September, significantly mitigated the impact of softening construction demand and directly supported iron ore demand. Simultaneously, the Chinese government released more proactive signals to stabilize growth, particularly through financial support for affordable housing and urban village renovation, which reignited market expectations for infrastructure to underpin the market in the second half of the year.

Entering the fourth quarter, pig iron output saw a seasonal decline, yet operating rates remained relatively high. Many steel mills, considering next year's production capacity limits, delayed maintenance plans, pushing back this year's hot metal production downturn. Moreover, the restriction on discharging Port Hedland Fines (PB Fines) coupled with sustained high demand for mid-grade ore fines led to structural tightness in port inventories. However, the market was also filled with bearish speculation regarding the Simandou iron ore project and concerns about next year's supply release.

The cancellation of various opposing factors resulted in a narrowed range of iron ore price fluctuation, maintaining a bracket where prices could neither fall significantly nor rise sharply. Currently, the full-year average price for iron ore in 2025 is projected to settle at $102/ton. This is a noticeable downtrend compared to $119/ton the year before last and $111/ton last year, with the core reason being the continuous increase in global iron ore supply in recent years.

Supply Side:

Based on our survey data, global iron ore production has been increasing for three consecutive years. Continuing this trend, the overall global iron ore supply in 2025 also shows a pattern of "steady increase." As of early December, global iron ore shipments this year have already increased by over 61 million tons compared to the same period last year. Regarding the major four miners, although parts of Brazil and Australia faced temporary cyclone and rainy season disruptions at the beginning of the year, Vale and FMG saw significant increases in their full-year shipments, outpacing the other two with 8% and 4% growth, respectively. Vale alone contributed nearly 23 million tons of increased shipments, thanks to the Capanema project and stable output from its Northern System, accounting for nearly 40% of the global increase. Beyond the major four, the Onslow project, operated by an Australian mineral resource company, also saw a major ramp-up and shipment this year. Compared to just over 10 million tons of shipments last year, the Onslow project shipped approximately 23 million tons this year, a year-on-year increase of nearly 13 million tons, making it one of the most significant sources of supply increment this year.

Demand Side:

Moving from supply, let's look at the changes in demand this year. As the largest iron ore consumer, China's steel consumption in 2025 has generally warmed up compared to last year and the year before, driven by the dual stimulus of overseas exports and infrastructure policies, leading to increased pig iron production. According to our surveys and tracking, the average daily hot metal output this year reached approximately 2.43 million tons, a noticeable improvement compared to the 2024 average of 2.41 million tons, providing strong support for iron ore demand. Correspondingly, we can also observe from the chart in the upper right corner that the volume of China's imported iron ore saw a very clear increase this year, with monthly imports breaking a three-year high in October. Steel mill profits this year have also been relatively impressive. Except for the period between May and June when profits were affected by Trump's tariff policies causing a drop in exports, steel mill profits remained high for most of the year. Even with a margin squeeze from rising raw material prices between late October and late November, the average annual profit for steel mills is projected to maintain a level of around 80-160 yuan/ton. For steel export profits, taking Hot Rolled Coil (HRC) export profit as the observation point, we can see that with the increase in export volume, the overall profit fluctuation tended to flatten compared to the previous two years, with the full-year average profit settling at around 11 yuan/ton. From this, we can see that the overall crude steel production and iron ore demand in 2025 were relatively stable, with some tug-of-war only emerging around late October. We can see some clues to this from the iron ore inventory.

Inventory:

Regarding inventory, based on our survey data, the total inventory across 35 main ports was at a level of about 140 million tons as of early December. The overall trend for most of the year was a slow de-stocking. Looking at the volume of iron ore discharged from ports (shūgǎng liàng), steel mills' purchasing enthusiasm has been maintained at a relatively good level. However, around the October mark, with the gradual tightening of environmental protection policies, coupled with year-end steel mill maintenance and furnace banking operations, iron ore demand saw a certain degree of decline. This manifested as a cliff-like drop in port discharge volume, shifting the port inventory trend towards accumulation.

However, a closer look reveals that iron ore prices unexpectedly held steady despite this trend. The core reason lies in the fact that while port inventory increased in total volume, the majority of the increase was in grades that are not core to demand. Conversely, although iron ore demand decreased, many steel mills opted to delay their annual maintenance plans towards the year's end to maximize next year's capacity limits under policy allowances. With lower profit margins, steel mills naturally chose more cost-effective iron ore. The restriction on discharging Port Hedland Fines reduced the overall supply of this variety, leading to a large-scale de-stocking of similar varieties, notably PB Fines. Port inventory of Port Hedland Fines has reached close to 7.5 million tons, accounting for nearly 14% of the main ports' inventory. This 7+ million tons of Port Hedland Fines continues to increase and is expected to be a pressure point on iron ore prices and a potential risk factor in the near future.

Iron Ore Market Outlook: Supply

Firstly, based on our tracking survey of global iron ore projects, 2026 is expected to see six large-scale iron ore projects commence production, including the Simandou North Block and the expansion of the Northern System. Including the Simandou South Block which starts production at the end of this year, these three projects alone will bring about 40 million tons of capacity release to the market. The other three projects will add approximately 30 million tons of new capacity, totaling nearly 70 million tons of new iron ore capacity entering the market next year, with the majority concentrated in the first half of the year. Therefore, the short-term pressure from capacity is expected to continue suppressing the rise in iron ore prices. Looking longer-term, from 2027 to 2028, another four iron ore projects will commence production. Accounting for the ramp-up progress of earlier projects, an estimated 90 million tons of capacity will be released during these two years. In total, approximately 150 million tons of capacity will be released over the next three years, mostly from Africa and predominantly from the Simandou iron ore project.

Let's take a closer look at the Simandou project specifically. Although the 120 million tons of production is widely known, the impact of Simandou will be gradual. According to Rio Tinto's 2026 production guidance, the Simandou South Block's output will be 5-10 million tons in 2026. Combined with the development progress of the Winning Consortium Simandou (WCS), the entire Simandou project's export volume is projected to be between 20-30 million tons in 2026. From a shipping cost perspective, the North Block is expected to have a cost advantage over the already-producing South Block. The South Block will initially have a higher shipping cost of around $137 due to financing costs. However, as capacity ramps up and costs are distributed per ton, the cost will gradually decrease to around $67. The average cost for the North and South Blocks of Simandou is expected to decrease from $100 in 2026 to around $64 by 2028. This means that Simandou is projected to become a relatively low-cost mine globally around 2028, with production expected to be around 60 million tons at that time, leaving about half of its capacity for further ramp-up. Other projects will also commence production in the following two years.

If we take the most pessimistic view to forecast iron ore capacity increment up to 2030, the global market is expected to see nearly 380 million tons of capacity enter the market by that time. The increments from China and India are mainly intended to supply their domestic markets, while a significant portion of the iron ore from Africa, Australia, and Brazil will become export products entering the seaborne market, thereby impacting iron ore prices. Of course, capacity does not entirely represent output, but future output will not be significantly lower than capacity. Regarding the output of the major four miners, the iron ore released from them is expected to be up to 50 million tons more next year than this year. Including the production increases from other non-major miners, the global iron ore supply is projected to reach around 2.54 billion tons in 2026, a year-on-year increase of about 2.4%. By 2030, if all projects are successfully commissioned, global iron ore supply is expected to reach approximately 2.8 billion tons. Overall, in terms of both capacity and output, the world is in a phase of significant increase starting in 2026, and demand is highly likely not to keep pace with the growth on the supply side. Next, let's examine the changes in global iron ore demand.

Iron Ore Market Outlook: Demand

Discussing iron ore demand requires mentioning a recent hot topic: environmental protection and low carbon. Although the concept of green steel is largely still at the slogan stage, real environmental controls and decarbonization policies are gradually being implemented in both the East and West. The steelmaking industry, especially blast furnace (BF) steelmaking, as the primary source of carbon emissions, has always been a key target for national regulation. The European Union's Carbon Border Adjustment Mechanism (CBAM) will formally enter the "substantive charging" phase starting January 1, 2026. This CBAM mechanism not only redefines the cost structure of steel products but also monetizes "carbon content" into a core trade barrier, fundamentally changing the economic comparison between the BF-Basic Oxygen Furnace (BOF) and Direct Reduced Iron-Electric Arc Furnace (DRI-EAF) process routes, which will have a profound impact on iron ore demand. However, considering that the CBAM's coverage scope allows for some time for the industry to transition, the short-term impact on the market may not be too severe. The initial CBAM coverage starts charging in 2026, but the levy ratio is very low for the first three years, which is the "golden adjustment window" for companies. By 2030, the levy ratio will suddenly jump to nearly 50%, which would lead to a massive cost shock if the low-carbon transition hasn't been completed by then. Therefore, we anticipate that CBAM will accelerate the global crude steel process transition. The global share of EAF steelmaking is expected to rise from about 30% in 2025 to about 35% by 2030. Currently, the raw material transition for low-carbon steel mainly involves two routes: scrap steel and Direct Reduced Iron (DRI). DRI still uses iron ore as a raw material, but the ratio will decrease from 1.6:1 for BF steelmaking to 1.45:1. However, based on our observations, the announced and under-construction DRI projects' capacity increase is clearly not keeping up with the growth in supply. The incremental demand for iron ore from DRI is only expected to be about 10 million tons in 2026, and only about 40 million tons by 2030, with this demand primarily focused on high-grade ore. Therefore, we believe that the premium for high-grade ore is expected to continue to rise in the future.

However, as China begins to encourage domestic steel mills to explore overseas markets and adjusts its domestic industrial chain to transition towards producing high-end finished products needed for the manufacturing industry, a large number of high-polluting, low-value-added, low-end capacities are being phased out. China's demand for iron ore is consequently decreasing year by year. According to our forecast, China's crude steel output is expected to cease growing from 2026 and begin a sharp decline starting in 2028, reaching an estimated level of around 950 million tons by 2030. Concurrently, India will become the new growth engine for the steel industry, similarly relying on infrastructure and real estate as growth points and expanding rapidly, with an astonishing average annual growth rate of up to 10.5%. India's crude steel output is projected to reach 167 million tons in 2026 and 200 million tons by 2030. Besides India, the steel industry in Southeast Asia, including countries like Vietnam and Indonesia, is also developing rapidly, expected to rise at a compound annual growth rate exceeding 5% over the next five years. The total crude steel output in Southeast Asia is projected to reach around 75 million tons next year and 100 million tons by 2030. The iron ore demand market will begin to shift outwards starting next year.

Taking a global perspective, the most direct impact of global decarbonization efforts on iron ore demand is the slow growth in volume. Based on the crude steel output and iron ore demand of several major countries, global iron ore demand is only expected to increase by about 20 million tons in 2026, which is clearly insufficient compared to the estimated 70 million tons increase in supply. Currently, based on our observations, the projects commissioned in India are primarily blast furnace-based. It is projected that by 2030, with the decline in China's iron ore demand, India's share of global iron ore consumption is expected to reach 15%, while China's consumption share is projected to drop to 52%. Looking ahead over the next five years, although global crude steel output will resume growth, the growth rate is markedly slower compared to the previous cycle. Furthermore, the future increase in crude steel production includes a significant amount of production utilizing scrap steel and DRI as furnace materials. All these factors combined lead to the expectation that iron ore demand will grow at a very slow pace over the next five years. However, while emerging markets outside of China are in a period of high-speed crude steel production growth, considering that China is the largest BF production country, with a volume ten times that of the second-ranked country, and that part of the overseas increment is EAF capacity, there is even a risk of declining iron ore demand due to the drop in China's crude steel output.

Finally, let's review the supply-demand gap and the iron ore price center forecast. Starting in 2026, with the sequential commissioning and ramp-up of large-scale projects, combined with some growth in overseas steel demand, we project that next year's iron ore supply-demand surplus will be around 190 million tons, a difference of over 40 million tons compared to this year's forecast. The full-year price center is projected to settle at $98. In the long term, 2028 will be a critical year. If prices fall below $90, the costs of most non-major miners will exceed the price. After this point, major miners may consider halting production, meaning that the concentration of global iron ore supply will begin to increase again after 2028, and prices are expected to stabilize and operate within the $90 range thereafter.