Australia to face lower iron ore earnings from 2021 due to falling prices

Monday, 28 September 2020 16:40:05 (GMT+3)   |   Istanbul

As prices move down, Australia’s export earnings are forecast to fall to A$80 billion by 2021-22, according to the quarterly outlook report by the Australian government’s department of Industry, Innovation and Science. Australia’s iron ore export values rose from A$78 billion in 2018-19 to A$102 billion in 2019-20 due to the growing volumes, strong prices and lower Australian dollar.

The iron ore export volumes from the country are expected to grow from 860 million mt in 2019-20 to 905 million mt by 2021-22, as a result of production commencing at several large new mines in Western Australia.

Despite the fall in demand amid the coronavirus, the iron ore prices rose to over $120/mt due to the supply disruptions in Brazil and robust demand from China. China dominates prices due to its high ore consumption and is not likely to accept high prices, prices are expected to soften by the end of 2020. The iron ore prices are forecast to be around $100/mt over the final quarter of 2020, before easing to around $80/mt by the end of 2021 and $75/mt by the end of 2022. Freight costs are expected to remain elevated in the short term amid Chinese demand. Chinese importers’ efforts to reduce costs may cause some downward pressure towards the end of 2020.

According to the report, the production in Brazil is not expected to return to normal levels until late 2022 amid dam construction and the impacts of the pandemic. In South Africa and Canada, the production has been affected by labour and transport disruptions amid the coronavirus. Australia is unlikely to see any major decline in export volumes in the outlook period, the country is set to raise export volumes given production shortfalls elsewhere. On the negative side, the loss of European steelmaking capacity will force Australian suppliers to adjust to falls in a modest but reliable iron ore export market, the report noted.

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