Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port, which began last week at $56.5/mt CFR China, closed the week at $56/mt CFR. At the beginning of the current week, iron ore prices are standing at $54/mt CFR China. Earlier, the Chinese government had announced that steel production will be restricted in some regions between August 28-September 4, against the backdrop of events such as the World Athletics Championship in Beijing and the commemoration of China’s victory over the Japanese in World War II. Accordingly, market players are curious about the future trend of iron ore prices, which have remained above $55/mt CFR since the first week of August.
Even though iron ore prices had moved on an uptrend in recent weeks following the decrease to a six month-low of $44.5/mt CFR on July 8, a pessimistic outlook prevails in the market regarding the prospects for the price trend in the medium term. Last week, US-based investment bank Goldman Sachs remarked that the biggest iron ore producers, such as Australia-based Rio Tinto and Brazilian miner Vale, are increasing their production despite the economic slowdown in China and so iron ore prices may decrease by 30 percent in the coming 18-month period. Meanwhile, Canada-based RBC Capital Markets also stated that iron ore demand in China is likely to decrease amid production cuts, while increasing supply will put pressure on prices.
Despite the devaluation of the Chinese currency against the US dollar since August 11, Goldman Sachs has stated that this will not have an important impact on the trend of iron ore prices, underlining that the main factor influencing iron ore prices is supply and that it seems that prices will move down in the medium term in line with increasing production. According to analysts at Goldman Sachs, iron ore prices may decrease to $49/mt CFR in the third quarter and may decline to $48/mt CFR in the last quarter of the current year. Goldman Sachs also predicts that prices will decrease further to $46/mt CFR by the middle of 2016.