At the beginning of a new year, Australia released its forecast on iron ore prices this year, which is expected to average $51.50 a ton, down 20 percent from 2017, due to climbing global supply and eased demand from the world’s largest importer China as its steel production is being curbed.
Among the world’s top three mining companies, BHP and Vale rely heavily on iron ore sales for the bulk of their revenue, although they have been making efforts to derive more profits from other industrial raw materials, such as coal, copper and aluminums.
BHP said it expects a slightly softer iron ore market in 2018 in consideration of a gradually slower growth of construction across the globe.
“The iron ore market in 2018 will be volatile and more focused on high-quality products,” said Arnoud Balhuizen, chief commercial officer of BHP.
“The change of China’s development blueprint of focusing on economic quality and sustainability, from economic speed, has had an effect on the sector in the past year,” Balhuizen said.
Additionally, Brazil-based miner Vale plans to raise iron ore exports 7 percent in 2018 to 390 million tons.
In Australia, Rio Tinto and BHP, along with Fortescue Metals Group aim to produce about 170 million tons more iron ore over the next few years.
The iron ore price is forecast to continuously decline from an average of $64.30 a ton in 2017 to only $49 a ton on average in 2019, according to the Australian Department of Industry, Innovation and Science.
“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 department said in its latest commodities outlook paper.
At present, iron ore sells for about $75 a ton. The price declining will reflect growing supply from low-cost producers and softened demand from China, the department added.
China has been taking a series of powerful measures to slash overcapacity in the steel sector with an aim to fight against its worsening environment.