Australia on Monday said it expects iron ore prices to average $51.50 a tonne this year, down 20 percent from 2017, because of rising global supply and moderating demand from top importer China as its steel sector shrinks.
The world's top three mining companies, BHP and Vale
rely heavily on iron ore sales for the bulk of their revenue despite
efforts to diversify more into other industrial raw materials, such as
copper, aluminium and coal.
Brazil-based Vale is planning to
lift iron ore exports 7 percent in 2018 to 390 million tonnes. In
Australia, Rio Tinto and BHP, along with Fortescue Metals Group aim to
add about 170 million tonnes of new capacity over the next several
The forecast price decline — from an average of $64.30 a
tonne in 2017 — continues into 2019, when the steelmaking raw material
will average only $49 a tonne, according to the Department of Industry,
Innovation and Science.
"The iron ore price is expected to
experience some ongoing volatility in early 2018, as the market responds
to uncertainty regarding the impact of winter production restrictions
on iron ore demand," the department warned in its latest commodities
Iron ore currently sells for about $75 a tonne. The
lower prices will reflect growing supply from low-cost producers and
moderating demand from China as the steel industry there contracts, the
China is in the process of closing ageing,
high-polluting steel mills and induction furnaces to curb overcapacity
in the sector. China's President Xi Jinping said in October that
fighting pollution was one of the country's key tasks through 2020.
liquefied natural gas (LNG) exports are forecast to climb to 76.5
million tonnes in the year to end-June 2019, from 63 million tonnes
forecast for the 2017/18 fiscal year and 52 million tonnes last year.
2016/17 and 2018/19, LNG should add A$14 billion ($11 billion) to
Australia's export earnings, while iron ore is forecast to subtract A$10
billion, according to the department.
The shift follows the
construction of $180 billion of new gas projects. The rise in LNG
earnings will be underpinned as three remaining projects under
construction hit their stride, it said. These are Chevron's Wheatstone
project, Inpex's Ichthys and Royal Dutch Shell's Prelude.
for coking coal, another key steel-making ingredient, are forecast by
the department to drift lower over the next eighteen months from last
quarter's benchmark price of $192 a tonne as rising supply more than
It also expects thermal coal prices to ease
through 2018 and early 2019, with the Newcastle spot price forecast to
drop 12 percent to an average $77 a tonne in 2018, and by a further 6
percent to $70 in 2019.