JOHANNESBURG (miningweekly.com) – While additional Chinese stimulus measures are set to tighten the iron-ore market and boost the price of the ferrous material to around $50/t to $70/t over the next six to nine months, oversupply will push new lows in 2018, BMI Research said in a research report on Monday.

The company noted that prices would drop again as a result of an oversupplied seaborne iron-ore market, driven by strong production growth in Australia and Brazil, compounded by weakening consumption growth in China.

“We expect that the Chinese infrastructure rally will slowly fade by the end of 2017, as its government has implemented several measures to tighten the property market. This will put downward pressure on domestic iron-ore demand,” BMI said in its report.

For the next year, iron-ore prices will be supported by sustained demand from steel mills restocking iron-ore; however, for 2017, it forecasts that the price will tip towards $55/t, dipping to $48/t in 2018.

On the policy side, BMI noted that authorities in more than 20 major Chinese cities, including the four Tier 1 cities and some core Tier 2 cities, had introduced new measures since September 30 to curb the surging price of homes in China.

“Most have resumed or tightened home-purchase rules on families without local household registration, or local households currently owning more than one residential property. Some also require a higher down payment for mortgage loans on second homes or have pledged to increase land supply,” said BMI.

Meanwhile, the research firm said that global iron-ore production would grow minimally from 3.13-million tonnes this year to 3.25-million tonnes by 2020. This represents average yearly growth of 0.1% in the four years, significantly lower than average growth of 4.8% between 2011 and 2015.

“On the one hand, supply growth will be primarily driven by Australia and Brazil, owing to expanding output by major miners, such as Rio Tinto, BHP Billiton, Vale and Fortescue Metals.

“On the other hand, miners in China, which operate at the higher end of the iron-ore cost curve, will be forced to cut output due to continued iron-ore price weakness,” BMI pointed out.

China, the world's largest iron-ore producer, will increasingly lose market share to Australia and Brazil as structurally low iron-ore prices will price out the country's particularly high-cost domestic miners. “We forecast output to fall by 10% and 5% in 2016 and 2017, respectively.”

Meanwhile, Australia and Brazil's iron-ore output growth will be relative growth bright spots, with ore output growing from 864-million tonnes and 453-million tonnes in 2016, to 907-million tons and 581-million tons in 2020, respectively.