Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China's Qingdao port, which closed last week with a slight increase, have decreased by $0.5/mt since last Friday, starting the current week at $78.2-78.8/mt CFR China. As of December 19, inventory of iron ore at 33 major Chinese ports amounted to 99.14 million mt, down 2.9 million mt or 2.84 percent compared to the inventory level recorded on December 12, as announced by China's Xinhua News Agency.
Australian coking coal prices which are believed to have an effect on iron ore quotations have continued their sharp downward movement in the current week. Also, although production cuts implemented in order to reduce air pollution in China are still in effect, it is observed that Chinese futures markets have declined. Under these circumstances, iron ore prices have fallen by 1.05 percent over the past week. It is also seen that Chinese buyers' demand for iron ore is at low levels with most of them maintaining a wait-and-see approach due to the declines seen in the local Chinese finished steel market. Additionally, Brazil-based miner Vale has officially inaugurated its S11D iron ore project, which is located in the state of Para, following the approval of an operating license for the mine from Brazil's federal environmental agency, Ibama. "For me, seeing the completion of S11D is much more than just witnessing a new landmark in the mining industry. More than an enterprise embodying the latest technology, low cost and high productivity, the S11D portrays Vale's ability to make things happen," Vale's CEO, Murilo Ferreira, said.
Despite the downward movement of coking coal prices, no significant fall is foreseen in the short term for iron ore quotations which are following a parallel trend with Chinese future market. Market sources state that no serious reduction is expected in China's steel consumption despite the ongoing production cuts. According to market sources, this situation supports both the steel market and futures market of China, strengthening the opinion that iron ore prices will maintain their fluctuating trend due to the current circumstances.
In the last week of 2016, the prevalent opinion of banks and analysts is that iron ore prices will trend below current levels in 2017 at around $50-60/mt. FocusEconomics in its December survey of analysts and institutions shows the price of iron ore averaging at $60.30/mt during the first quarter of next year, while for Q4 in 2017, analysts expect prices to fall to $55.70/mt on average. Dutch bank ABN Amro is the most optimistic with its iron ore price forecast at an average of $77/mt next year, while BMO Capital Markets expect prices to fall sharply from today's levels to an average of $46/mt over the course of 2017. Goldman Sachs predicts iron ore prices to trend above $60/mt in early 2017, with a moderate decline to $55/mt by the end of 2017. That's the same price Australia's Industry department is predicting for FOB prices by September next year. Iron ore price expectations on futures markets are much more optimistic according to a recent note from the Singapore Exchange: "With iron ore spot prices surging in recent weeks, optimism has extended to forward price expectations too. 2017 forward price expectations have risen to their highest level of the year, with the SGX Iron Ore forward curve currently pricing 2017 at around $70/mt." SGX's $70/mt forecast for iron ore prices in 2017 is approximately 25 percent higher than 2016's year to date average which is $56/mt.