Don’t dream its over.
Australia’s central bank is expecting a decline in the price of iron ore in the short-term as Chinese steel demand hits a ceiling and global supply continues to expand.
Iron ore with 65 per cent iron content delivered to Qingdao was priced at $73.50 a tonne on Monday, having lifted 38 per cent over the past three months. In the same period, shares in Australian iron ore miner Fortescue Metals Group have lifted 14 per cent to A$5.44.
According to minutes from its August meeting, the Reserve Bank of Australia believe:
Iron ore prices had been supported at higher levels because of sustained strong demand for steel in China. However, prices were expected to fall in the period ahead because of the ongoing expansion of global iron ore supply following an extended period of strong investment.
RBA members noted that as China had reached a similar level of steel production per capita to that of industrialised economies, its output was “likely to be close to its peak” and that further growth in Chinese steel production would not add much to global demand for iron ore in the future.
Chinese iron ore and steel import volumes have declined since May and are now at their lowest point since late October 2016, according to the National Bureau of Statistics of China.
Still, the central bankers also noted that longer-term, “there was potential for India to have a noticeable effect on commodity markets as investment in residential construction and transport infrastructure increased.”
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