Australia is at one and the same time a large player in the global steel market and a small one. We sit at the large table because we supply China with more than half of the iron ore it needs to make almost 60% of the world´s steel. But at the level of manufacturing and consumption of steel, we are a minnow. All of which makes the export price of iron ore vitally important not only to the steel industry in Australia but also to the population at large. In which regard, the Resources and Energy Quarterly Report (September), produced by the Department of Industry, Science and Resources, contains some fascinating predictions. On the overall steel industry, the report says global steel production faces a weaker second half of 2023 in which prices are likely to moderate, due to lower demand from China’s property sector and slowing manufacturing and construction in advanced economies. However, the outlook in 2024 is for a strengthening on the back of rising ex-China demand, particularly from India and South-East Asia. On its key topic of Australia´s resource and energy export earnings, the department says the level will fall from last year’s record AUD 467 billion to $400 billion in 2023-24 and $352 billion by 2024-25.

(Continuation)

Whilst Australia’s iron ore export volumes are forecast to rise from 895 million m/t in 2022-23 to 933 million m/t in 2024-25, the report says earnings will decline from AUD 124 billion in 2022–23 to $120 billion in 2023–24 and to $99 billion in 2024–25. This will be driven by lower prices over the outlook period. Globally, the benchmark iron ore spot price basis is 62% Fe fines CFR Qingdao. The government´s report anticipates the spot price for calendar 2023 to average around USD 100 per m/t on a FOB basis. From there it is projected to steadily fall to an average of USD 84 in 2024 and USD 76 per m/t in 2025.

Iron ore prices dropped abruptly earlier this year as weak demand fuelled concerns that China’s economic rebound from coronavirus lockdowns had faltered amid fears of the collapse of property giants like Evergrande. But healthier than anticipated demand from steel mills triggered an unexpected price rally for the mineral, which is Australia’s largest export and which accounted for almost 65% of BHP´s underlying earnings in the year to June.

“Iron ore demand is very strong in China, given that currently Chinese steel production is at a record high – highest ever production run rate of 1.08 billion tonnes,” BHP´s chief commercial officer, Vandita Pant, recently told the Australian Financial Review. “There is very little iron ore inventory in the system. In fact, the total port side inventory in Chinese ports of iron ore is at the lowest of [the] last four years.” Ms Pant said she is optimistic that China’s infrastructure firms and manufacturers, which are showing a stronger than expected appetite for steel, should boost the already strong demand for iron ore, generating momentum into next year. Swiss investment bank UBS agrees. It now expects iron ore prices to fall by less than previously thought and has lifted its long-term iron ore price from USD 65 per m/t to $85. The market consensus is $75 per m/t.

Finally, an update on the union strikes affecting DP World terminals. Nicolaj Noes, Executive Vice President – Oceania, has said: “Since the inception of the bans by the CFMMEU-MUA Division on 6 October 2023, there have been tangible disruptions across all our terminals. Exporters, importers and the broader supply chain have felt the ripple effects of these disruptions, particularly in berthing arrangements and landside services, including road and rail operations.” Ms Noes commented that discussions held in September had brought limited progress. Further meetings were scheduled for 17-19 October but were contingent on the cessation of protected industrial actions.