Iron Ore Prices to be Quite a Bit Lower Next Year; Steel to Moderate
November 2, 2019 - Prices for iron ore should be "quite a bit lower next year" while met coal could rise and steel pricing will moderate but not collapse, Tracy Liao, research analyst, Citi, told delegates at the London Metal Exchange's ferrous focus session in London Thursday.
Average prices for 62% Fe iron ore fines delivered to China may fall to $80/mt in 2020, from $94/mt in 2019, before sliding to $60/mt in 2021 and 2022, Liao said. This would not be far off the 2018 average price at $69/mt, before this year's disruptions.
"Iron ore had a major year," in 2019, due to production disruptions at Brazil's Vale and as a consequence of Australian cyclones that led to a "major dip" in shipping, she said. Now, the industry is "mainly back on track;" of the 90 million mt/year which Vale said it would lose following its January tailings dam accident, 30 million to 40 million mt/year has now come back. However, weather-related disruptions may continue to play out, she said.
"The trend is for prices to gradually dip down but the path will be really bumpy," Liao said.
Iron ore lump and pellet premiums are under pressure due to ample supply and weak steelmaking margins, with price differentials between 65%, 62% and 58% Fe fines also much lower than 2017/2018 levels, she said.
For 65% Fe grade fines, Citi sees average prices falling to $91/mt in 2020, from $107/mt in 2019, before declining further to $67/mt in 2021 and $65/mt in 2022 -- substantially lower than the $90/mt average of 2018.
Met Coal Supply Growth to Stab Subdued
Met coal's lower prices this year have resulted from weak buying from China and India, although there has been a recent modest rebound, and prices will likely improve from current levels, Liao said. "Robust China import arbs should lift spot coking coal purchases from Australia," she said, noting that Australia FOB prices are now at a major discount to China domestic prices.
Seaborne supply growth will likely remain subdued until 2021, while China's blast furnace upsizing should support demand for hard coking coal, she said.
Average prices for hard coking coal are at $185/mt this year, slipping to $170/mt in 2020, $160/mt in 2021 and $150/mt in 2022, according to Citi research.
'Moderate' Prospects for Steel
Steel is set for a moderate performance because while advanced economies are expected to slow notably in 2019, they should turn up modestly in 2020, Liao said.
India, after a "very weak" 2019, will bottom out in 2020 after the announcement of infrastructure developments. China, accounting for 50% of global steel consumption, had some strong growth in 2019, with the property sector outperforming expectations, although lower growth may occur in this area in 2020 and fixed-asset investment remains weak, she said.
Steel inventories have remained broadly low in China though margins are under pressure due to supply growth, with Chinese effective steel capacity still climbing, Liao said.
Outside China, steel market fundamentals are weak, with flat demand, as evidenced by a significant drop in ArcelorMittal's composite margins, according to the analyst.
The automotive sector, typically the second largest steel consuming sector, was weak globally in 2019, including in China, where automobile sales fell and also in India, according to Liao.
Automotive "is the sector where we'll see most challenges in the next two-three years," she said.