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Iron ore prices seen firm in 2018

Iron ore fines prices are likely to remain firm in 2018 at an average of just over $70/t on a cfr China 62pc Fe basis, according to an informal poll taken at the Global Iron Ore & Steel Forecast conference in Perth today.

The survey of the 120 attendees forecast a low of around $57/t for the year. Downward pressure from iron ore supply additions will be offset by robust profit margins at Chinese steel mills, supporting demand for higher-grade 62pc and 65pc Fe ores. The Argus 62pc ICX index averaged $71.54/t in 2017, close to the conference’s prediction of around $71/t. The ICX has averaged at $75.41/t so far this year.

“That shows a really positive mood out there in the market,” AME Advisory director Lloyd Hain said. “No-one is really expecting the really bearish prices that we saw in 2016.” The ICX averaged $56.90/t in 2016.

Supply pressures have widened differentials between the 62pc fines segment and lower-Fe ores. Major Australian producer Fortescue Metals’ 56.7pc Fe super-special fines (SSF) discounts have widened to around 40pc below the 62pc index, but with 62pc prices above $65/t margins are still intact for ores at lower grades.

“At the moment times are good,” said H&W Worldwide Consulting principal Neil Bristow. “Even with differentials [widening between grades] many people are making money.”

China’s steel demand is likely to rise this year, as sustained real estate demand offsets weaker infrastructure spending, Citigroup analyst Tracy Liao told the conference. There have been some delays to infrastructure project start-ups this year because of tighter financing for local governments, but those projects should be starting up in April and May, she said. China’s national assembly session this month also delayed construction starts in north China after the winter shutdown. Citigroup expects iron ore prices to average $66/t cfr China in 2018 before falling to around $60/t in 2019 and then remaining stable in the $55-60/t range over the next few years.

Supply pressures are easing, with seaborne iron ore capacity additions past their peak. Liao expects 50mn-60mn t of iron ore supply to be added in 2018 and another 30mn-35mn t in 2019, down from a rate of 80mn t/yr in 2015-17. But rising scrap availability and additional electric arc furnaces and converters in China will put downward pressure on iron ore prices in the next few years.

China’s winter restrictions on blast furnace output were partly offset by the increased use of scrap in converters, which reduced the percentage of pig iron used to make crude steel, and rising output at south China mills.

Chinese domestic iron ore production is no longer swing supply because of a lack of investment and increased regulations. But Citigroup said its recent site visits indicate some production is more resilient than previously assumed, and it expects domestic output to increase to 255mn t in 2018 on a 62pc Fe equivalent basis, from 245mn t in 2017.

It is difficult to get accurate figures for China’s iron ore production as the range of estimates vary by more than 100mn t/yr, with a lot of dependence on third-party data, Liao said. And efforts to indirectly arrive at the production data using iron ore imports and reported pig iron output statistics are hampered by the questionable accuracy of the pig iron output data.

Source: Argus

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