The iron ore trade faces »a few more« tough years, a new[ds_preview] report from United Nations agency UNCTAD reveals. The report estimates that the world iron ore market will be characterized by potential or actual oversupply. »This will prevent prices from rising above a certain level and they will be determined by what is needed for additional investment to go ahead, particularly by mining giant Vale in Brazil,« UNCTAD says.
The smaller demand will also affect the business of bulk carrier owners active in this segment. The industry is challenged by massive tonnage oversupply for some time.
»Demand for steel in China is set to grow considerably more slowly than during the past decade, while demand in the rest of the world is set to pick up, in spite of the weak outlook in the Euro zone,« it is predicted.
A continuing increase in supply combined with a slump in demand made 2015 a challenging year for the iron ore market. The report notes that world crude steel production in 2015 reached an estimated 1,763mill. t, a decrease of 2.9%, while the iron ore production reached 1,948mill. t, down 6% on 2014. The effect on the iron ore market was that, after a long period of rapid growth, demand leveled off and prices returned to levels not seen since 2002. The price of iron ore began 2015 at 71.26 $ per dry metric tonne but fell 39% by the end of the year.
A reorientation of China’s economic strategy brought growth in the use of steel almost to a halt, and signs of demand picking up in other parts of the world were not enough to offset China’s slowdown. »At the same time, the world’s largest iron ore mining companies not only expanded production in Australia, but also elsewhere, leading to a substantial supply overhang,« the UNCTAD experts write.
