The price of iron ore continues to fall. This decline coincides with warnings from one of the world’s largest steel producers, China, warning of a crisis in the sector.
In recent years, China has become one of the largest steel producers, buying 75% of the iron ore that circulates in the world, between 100 and 120 million tonnes per month.
Therefore, in boom times, the demand for this metal soars due to the expansion of the construction sector, but in times of slowdown such as those we are currently experiencing, consumption falls, affecting prices globally.
Why iron ore prices continue to fall
China’s ability to generate growth through construction has ended. This, as we have discussed above, has led to a weakening demand for steel, and with it, lower demand for iron ore.
It is consolidating as one of the worst performing commodities so far this year, with prices down by around 50%. Moreover, they have even stated that ‘the sector is facing a stronger crisis than those of 2008 and 2015’.
Shares of the major iron ore mining companies have seen their stocks fall in the market by between 11% and 35% from January to early September and globally they are expected to continue to fall for the next few years. Still, gains are ample and the slowdown will be offset by lower production, which will support market prices.
Demand from China will decline as property construction continues to contract and decarbonisation efforts mean that a greater proportion of steel production will be produced from steel scrap rather than iron ore.
Is this a global crisis?
Despite the pessimistic outlook, experts rule out a major market crisis, as industries in developed and some emerging economies will continue to demand iron. Even China, which will reduce its consumption of long steel, which is used in construction, will continue to need either the raw material or scrap steel for its transition to a green economy.
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