Global iron ore prices which have trended downwards generally in 2014, registered a sharp fall on December 23 and prices for 62 percent Fe content iron ore declined to $66.5/mt CFR China, the lowest since June 2009. Iron ore prices were at $133/mt CFR China in the beginning of 2014 and have fallen by 50 percent since. The oversupply created by the investments of major iron ore producers was the main reason for this decline, while the worsening of Chinese economy and the less than expected growth in iron ore demand in the local Chinese market supported the downtrend of iron ore prices.
2014 was not a bright year for iron ore markets and iron ore prices are expected to continue softening in 2015. In 2014, China, the second largest economy in the world, witnessed financial constrictions and the country's purchasing power has fallen significantly. These circumstances have supported the declines recorded in iron ore prices, while Chinese economy does not promise any hope for 2015. In fact, Chinese government considers reducing 2015 growth targets, with the new growth target anticipated to remain below 7.5 percent, which was the 2014 target. This indicates that the downward pressure on iron ore prices will continue.
Regarding the oversupply issue which is another reason for iron ore price decline, different scenarios are being discussed. Most of the iron ore projects planned to be commissioned were canceled or put on halt in the second half of 2014 due to substantially weak iron ore prices, indicating that a higher oversupply will not be a threat in the coming period. On the other hand, major iron ore producers such as Vale, Rio Tinto and BHP Billiton have indicated that they will continue their investments in 2015, forcing less competitive iron ore producers to pull out of the market.
Meanwhile, the Chinese government focused on environmental issues throughout 2014. In fact during the Asia-Pacific Economic Cooperation (APEC) meeting in Beijing, the government forced some steel plants to halt their production. The Chinese government is expected to take stricter precautions in 2015 which might affect the gradually increasing steel production. Moreover, market sources state that Australian government plans to implement some measures to protect minor iron ore producers which have been suffering from plummeting iron ore prices. Australian government will consider all options and discuss the possible measures with the iron ore producers.