**Abstract**
The price of iron ore, a key driver of steel prices, has declined in recent months as new projects in Australia start production and Brazil increases its shipments. According to recent reports, the benchmark iron ore price fell from around $143 per ton in August to $132 per ton. Analysts suggest that with increased supply from major Australian miners, such as BHP Billiton, Fortescue Metals, and Rio Tinto, the market is under growing pressure. Citi estimates that these companies will produce 3.4 million tons more than the same period last year due to ongoing expansion projects.
This increase in supply comes at a time when China’s steel demand for the fourth quarter remains uncertain. Despite a record high in July, where China imported 73.14 million tons of iron ore, the import volume dropped to 69.01 million tons in August, reflecting weaker demand. Although the import price remained relatively stable, the decline in volume signals a shift in market dynamics.
On September 30, the 62% Australian fines index stood at $130.5/ton, while the 58% Australian fines index was at $120.25/ton, and the 65% Brazilian fines index reached $143.25/ton. The average monthly import price of iron ore has been on a downward trend since June, falling below $130/ton and reaching $118.80/ton by August 31.
Industry observers believe that with increased seaborne supply expected in the coming months, iron ore prices are likely to continue their decline. There were 128 iron ore vessels in September, with a total capacity of 20.235 million tons, averaging about 4.27 ships per day. Analysts note that around 70% of the new supply from foreign mines is expected to flow into the Chinese market, further intensifying competition.
China’s domestic steel market is also showing signs of weakness. On September 30, the domestic steel index slipped to 3,600 yuan/ton. While there was a 20% rebound from May’s low, the third-quarter average price was $132.45/ton. Some analysts, like Macquarie Securities, had previously predicted that prices could reach $150–$160/ton in the fourth quarter due to weather-related factors and inventory replenishment. However, this optimism may be short-lived.
Recent data shows that from January to August, China imported 526 million tons of iron ore, up 8.3% year-on-year, but the average unit price dropped 5.9%. Industry insiders point to shifting inventory cycles, seasonal demand fluctuations, and large supply additions as key factors that could keep prices under pressure.
Additionally, steel mills in China are reducing their iron ore stocks, and India is easing mining and export restrictions, which could lead to more global supply. These developments add to the downward pressure on iron ore prices.
Looking ahead, the global iron ore market appears to be moving toward a more oversupplied environment. Australia alone is expected to add about 140 million tons of new production over the next two years. Even with some operational challenges, companies like Rio Tinto have continued to expand, with output rising 7% year-on-year in Q2 2013 to 51.8 million tons.
Given the continued rise in foreign mine production and limited improvement in domestic demand, the supply-demand imbalance is expected to keep iron ore prices under pressure. Citigroup predicts that iron ore prices could fall to $110/ton in the fourth quarter as China's weaker demand and tighter monetary policy take effect.
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