**Abstract**
With the start of new iron ore projects in Australia and increased shipments from Brazil, the steel price that has been a key driver for steel prices has seen a decline in recent months. According to recent reports, the benchmark iron ore price has fallen from a high of nearly $143 per ton in August to $132 per ton. This downward trend is expected to continue as supply increases from major producers.
Citi’s recent report suggests that the output of the three largest Australian miners will be 3.4 million tons higher than the same period last year, as their expansion projects come online. Analysts believe that with rising iron ore production, prices are likely to face further pressure, especially given the uncertain outlook for China’s steel demand in the fourth quarter.
**Fourth Quarter Mining Price Pressure**
As of September 30, the import mineral price index showed that the 62% Australian fines index was at $130.5/ton, the 58% Australian fines index at $120.25/ton, and the 65% Brazilian fines index at $143.25/ton.
The average monthly price of imported iron ore has dropped below $130/ton since June, falling to $118.80/ton by August 31. Although China’s iron ore imports hit a record high in July, with 73.14 million tons imported—an increase of 17.4% compared to the previous month—August saw a slight drop in volume to 69.01 million tons, despite a marginal increase in price to $118.8/ton.
Analysts suggest that with limited improvement in China’s steel market during the fourth quarter, iron ore prices may not rebound significantly. Additionally, the anticipated surge in seaborne iron ore supply is expected to put more downward pressure on prices. In September alone, there were 128 iron ore carriers in operation, with a total capacity of 20.235 million tons, averaging about 4.27 ships (or 67,450 tons) per day.
Citi previously estimated that the four major Australian miners—BHP Billiton, Fortescue Metals, and Rio Tinto—will produce 3.4 million tons more than the same period last year as their expansion plans begin to take effect. Analysts also noted that approximately 70% of this new production is expected to flow into the Chinese market.
**Domestic Demand is Hard to See**
As the world's largest iron ore consumer, China remains a key market for international mining companies. However, the slowdown in China’s steel sector is a concern. On September 30, the domestic steel index fell to 3,600 yuan/ton.
While iron ore prices rebounded by 20% from their May low due to stock replenishment by Chinese steel mills, the third-quarter average reached $132.45/ton. Some analysts, like Macquarie Securities, even predicted that prices could reach $150–$160/ton in the fourth quarter, supported by weather factors and inventory rebuilding.
However, data shows that from January to August, China imported 526 million tons of iron ore—a 8.3% year-on-year increase—but the average unit price fell 5.9% to $129.5/ton. Industry insiders believe that shifting inventory cycles, seasonal factors, and large supply additions will likely keep prices under pressure.
In addition, steel mills in China reducing their iron ore stocks and India easing mining and export restrictions could lead to an increase in global supply, adding to downward pressure on prices.
It is worth noting that the rise in international iron ore supply appears to be irreversible. Australia alone is expected to add around 140 million tons of new production over the next two years. Even with challenges such as equipment failures and unexpected weather, Rio Tinto reported a 7% year-on-year increase in iron ore output in Q2 2013, reaching 51.8 million tons—a record high. Despite efforts to cut costs and sell assets, the company still launched its 290 million tons/year iron ore project in Australia in the third quarter of this year.
Industry observers believe that with continued production growth from foreign mining companies and limited improvement in domestic demand, the imbalance between supply and demand will continue to weigh on iron ore prices. Citi’s latest report predicts that iron ore prices could fall to $110/ton in the fourth quarter as weaker Chinese demand and tighter monetary policies begin to take effect.
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