Macro

Iron Ore to Hit $100, Plunge to $85 by 2025 Amid China Crisis

Iron Ore Prices Predicted to Hit $100 by Year-End Amid China's Deepening Housing Crisis and Falling Demand

By Barry Stearns

4/16, 22:28 EDT
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Key Takeaway

  • Iron ore prices expected to drop to $100 a ton by year-end, further declining to $85 in 2025 due to China's housing market collapse.
  • Chinese demand for iron ore forecasted to decrease by 1% in 2024 and 2% in subsequent years amid falling steel production and stricter emissions controls.
  • Global demand unlikely to offset surplus from increased mining production, despite iron ore's recent price recovery to $111.10 a ton.

Iron Ore's Precarious Future Amid China's Real Estate Woes

The global iron ore market is facing a significant turning point, with predictions from Capital Economics Ltd suggesting a sharp decline in prices to $100 a ton by the end of the year, further plummeting to $85 by 2025. This forecast is primarily attributed to the deepening crisis in China's housing market, which is expected to exacerbate the already declining demand for iron ore. The backdrop of this prediction is a complex interplay of falling steel production, stringent emissions controls in China, and an anticipated increase in supply from major mining companies. This scenario is unfolding as iron ore experiences a temporary recovery, trading at $111.10 a ton in Singapore, despite a more than 20% decrease since the year's start.

The Dynamics of Supply and Demand

The iron ore market's current state and future outlook are heavily influenced by China's dominant role, consuming nearly 70% of the global supply. Capital Economics points to a 1% reduction in Chinese demand in 2024, with further declines expected, challenging the industry's stability. This forecast aligns with recent production data from Rio Tinto Group, which reported a 5% drop in first-quarter shipments due to China's uneven economic recovery and its faltering property sector. Meanwhile, Vale SA, another industry giant, exceeded first-quarter production expectations, signaling a potential surplus in the market that could exacerbate the price decline, especially if demand continues to wane.

Global Implications and Industry Response

The anticipated downturn in iron ore prices and demand has far-reaching implications, not just for the mining giants but for the global economy at large. The iron ore market's health is a bellwether for industrial activity and economic vitality, particularly in manufacturing and construction sectors. As China grapples with its internal challenges, including a slowing economy and a troubled real estate sector, the ripple effects are felt worldwide. Mining companies like Vale SA are navigating these turbulent waters by optimizing production and adjusting to market demands, yet the overarching trend points to a period of adjustment and potential strain for the industry.

Street Views

  • Capital Economics Ltd (Bearish on iron ore):

    "Iron ore is likely to revisit $100 a ton by the end of the year before falling further to $85 in 2025 as China’s housing market collapse worsens... Falling steel production and emissions controls on highly polluting blast furnaces should shrink Chinese iron ore demand by 1% in 2024 and 2% in subsequent years."