Iron ore prices exceed analyst expectations

It anticipates Australia’s strongest commodity by exports to reach a price of $US110 ($146) per dry metric tonne CFR next year, before settling at $US95 in 2022 and $US85 the following year.

This still represents a 7-21 per cent lift in UBS’ iron ore forecast across the next four years.

The decision to upgrade is driven by strong Chinese steel production growth following an economic slowdown.

“In our view, Chinese steel output will continue to grow at a moderate pace through 2022-23, and coupled with a recovery in ex-China demand, will require high-cost supply … to remain in the market,” UBS stated in its miners’ price review, ‘2021 Outlook: Booster Shot’.

Iron ore prices kept their steady spike since November to finish at $US146.28 per tonne on December 9, a rise of 0.85 per cent on the previous day.

This is propped up by a reduced supply estimate from Vale, which is likely to produce 300-305 million tonnes for this year, falling short of its previously downgraded 2020 target of over 310 million tonnes.

Fortescue Metals Group, set to be a beneficiary of this, delivered its first ore at the Eliwana processing facility in Western Australia on Wednesday, with its first ore on train scheduled for this month.

The company gained nearly 28 per cent in value during the past month, climbing from $16.54 on November 12 to $22.9 at the time of writing.

BHP also surged from $35.77 on Nov 13 to its 10-year highs at $43.3 this morning, while Rio Tinto soared from $96.09 to $115.99 over the same period.

Iron ore drove Australia’s trade surplus in October with $11 billion in exports value, a 44 per cent jump on the prior corresponding period.

However, UBS considers the elevated iron ore prices level to be unsustainable, with continued ramp up in supply expected to drive prices down through 2021.

The bank also flagged the potential impact of China-Australia trade issues on iron ore prices, with China underwriting new supply including at the giant Simandou iron ore project in Guinea, Africa.

Improved prices are also envisaged across copper, zinc and aluminium, with UBS upgrading its estimates for 2021 by 17 per cent, 15 per cent and 10 per cent, respectively.