In the short term, the ongoing surge in low-cost supply –driven by both brownfield mine expansions and productivity improvements – will continue to put pressure on the price of iron ore as it outstrips the increase in demand.
Consequently, many higher cost producers, particularly in Australia and China, are likely to shut down operations, which will flatten the cost curve and will drive some, but not a significant reduction in the supply of iron ore. Medium and long term, the expectation is that low-cost supply will continue higher than demand as a number of low cost iron ore expansion projects, principally in Australia and Brazil, will be finalized and production ramped up. Although there should be less volatility in iron ore prices, there is no real expectation of a significant price increase.
“Although there should be less volatility in iron ore prices, there is no real expectation of a significant price increase.”
Looking further ahead, from 2030 the expectation is that demand for iron ore will decline as a result of the high level of steel scrap, particularly in the Chinese market. Iron ore prices are expected to reach an average of US$63/ton in 2015, witnessing a decline of about 35 percent as compared to the 2014 value of US$97/ton. According to the Australian government, steel consumption growth in China is expected to remain flat over 2015 – further impacting iron ore prices – while a surplus production of 111 million tons (Mt) of iron ore is estimated to enter the seaborne market over the same period.