UBS has raised its iron ore price forecast to $93 per ton in a new report. The bank believes that the current market outlook for iron ore prices is very limited and that several factors affecting the market have received less attention.
Reasons for the Increase in Iron Ore Price Forecast
UBS has provided three main reasons for raising its iron ore price forecast. These reasons include steady steel demand outside of China, slower iron ore supply growth compared to forecasts, and a decrease in iron content in ore. In this context, UBS particularly pointed to the changing demand trend in China, which has shifted towards industrial and export production.
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China currently produces more than half of the world's steel and imports about three-quarters of the world's seaborne iron ore. However, steel demand in China has significantly decreased due to reduced construction and infrastructure activities. UBS estimates that China's steel demand reached 796 million tons last year, a 21% decrease from its peak in 2020.
Factors Affecting Iron Ore Supply
In addition to declining demand in China, UBS points to other reasons that contribute to slowing iron ore supply growth. Miners are increasingly facing declining ore quality and the need to replace old mines. For example, Rio Tinto has estimated that it needs investment to replace about 800 million tons of its current production by 2035. On the other hand, UBS predicts that investment in securing new supply between 2027 and 2035 will be about 60% lower than in the past nine years.
UBS also noted the increasing steel demand in developing countries. These countries, referred to as the “Global South,” include 14 developing nations and are expected to increase their steel production from 434 million tons last year to 640 million tons by 2035. India, in particular, has been at the forefront of this growth, with its seaborne iron ore imports expected to rise from 10 million tons last year to 117 million tons by 2035.
Finally, UBS believes that negative forecasts regarding iron ore have been overly cautious due to a lack of proper understanding of changes in demand and supply. Thus, UBS believes that iron ore prices will significantly rise in the near future.
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