The iron-ore price dropped to below $100/t last month, and international research firm Wood Mackenzie forecasts that the price will continue to drop to below $90/t in real terms until 2017 before some light is expected at the end of the tunnel.

“Wood Mackenzie expects the price to rise from 2017 to 2020, following our forecast that China’s demand will continue to grow and because . . . the resources of several mines worldwide will start to deplete from the 2020s,” says Wood Mackenzie iron-ore cost research analyst Andrew Hodge, who notes that prices will need to increase in future to incentivise new production.

Hodge maintains that the global iron-ore market is transitioning from a period that historically comprised a significantly higher demand than supply towards a period of possible capacity oversupply.

“Theoretically, from this year, we forecast that, if all the different mining companies worldwide are producing at the capacity their mines enable them to, supply would exceed demand,” Hodge says.

However, Wood Mackenzie does not believe that all iron-ore miners worldwide will produce to capacity and, therefore, that there will not be a supply excess in the next five years.

Wood Mackenzie highlights the potential for West African iron-ore projects, citing global steel major ArcelorMittal’s Liberia-based iron-ore project, and minerals explorer African Minerals’ Tonkolili iron-ore project, in Sierra Leone, as key examples of successful projects in the region.

Nevertheless, Hodge maintains that significant growth is forecast for Australia and Brazil. “Most of the growth Wood Mackenzie forecasts will come from Brazilian mining major Vale’s operations and from the projects Australian miner Rio Tinto is completing.”

Brazil’s iron-ore industry growth forecast is estimated at about 406-million tonnes for this year. Wood Mackenzie expects the figure to increase in 2019 to about 552-million tonnes as Vale and other iron-ore producers complete their projects and start production.

Vale is the world’s biggest producer of iron-ore and pellets – raw materials essential to manufacture steel. Vale’s Carajás iron-ore mine, in the Amazon region in northern Brazil, is the company’s biggest operation. Iron-ore produced by Carajás is considered to be the highest quality in the world, according to Vale’s website.

Wood Mackenzie forecasts that Australia will produce about 701-million tonnes of iron-ore this year – a year-on-year increase of about 80- million tonnes. Further, the company forecasts that Australia’s 2019 iron-ore production will increase to about 875-milllion tonnes.

This increase is primarily because of an expected increase in production from Australian mining majors Fortesque, Rio Tinto and BHP Billiton, as well as production from small-scale miners, Hodge adds.

Meanwhile, Rio Tinto’s operations, in Western Australian and Canada, are being expanded, while the company is also investing in greenfield projects.

Hodge believes that, while iron-ore is produced at a lower average cost of $40/t to $50/t in Australia, a significant amount of low-cost production from Australia will start to displace some of the high-cost iron-ore from China.

“As the iron-ore price starts to fall, Wood Mackenzie expects production in China to start shutting down and for China to import more iron-ore.”

He stresses, however, that if Chinese producers do not stop production, or if their demand for iron-ore decreases, the iron-ore price may decrease further.

Hodge adds that the increased use of scrap metal may also feed into the market and could replace virgin iron-ore.