The Bank of America’s global research team is lowering its price forecast for iron ore fines in 2022 by 45% to US$91 per tonne (down from its previous forecast of US$165 per tonne) on the back of enforced steel production cuts in China. Beijing’s restrictions on steel output are driven by its goal of driving down emissions.
For this year BofA has cut its price forecast by 16.6% to US$157 per tonne from US$188 per tonne.
“China’s policy to “force” steel production -10% during the period August-December puts the iron ore market into surplus,” BofA analysts wrote in a research note to clients. “Barring a change in this policy stance, we don’t see any reason why iron ore shouldn’t trade down to marginal cost (c. $80/t), particularly as “blue sky” policies loom in early 2022 for China’s winter Olympics.”
The winter Olympics begin on February 4.
Recent guidance from the country’s Environment Ministry, the bank says, “suggests authorities will remain focused on emissions in the run-up to the Olympics next year.