The iron-ore price rally is finally starting to show signs of weakening, which will continue into coming months, says research agency Fitch Solutions.

The agency explains that demand strength from Chinese steel producers witnessed in the first half of the year is stabilising as stimulus-related construction projects reach completion and the pipeline of new projects tapers off, setting iron-ore up for a multi-year downtrend in pricing from here on out. 

Fitch Solutions says the price of iron-ore is likely to drop from the expected $170/t by year-end to $130/t in 2022, $100/t by 2023 and ultimately $75/t by 2025.

Iron-ore prices were hovering at about $175/t in early August, down from $239/t in May.

While China was on a drive to recover economically in the first half of this year and recorded steel output growth of 11.4% year-on-year, it has resumed focus on tightening credit lines, as well as limiting steel production as an avenue to decarbonise the economy.

China in July started implementing an export tax hike for certain steel products, which impacts on iron-ore demand, while the country is also upping its domestic iron-ore output in attempts to reduce import dependency.

China’s iron-ore production grew by 13.9% year-on-year from March to June, while imports declined by 2% year-on-year in the period.

Moreover, Fitch Solutions says improving production growth from Brazilian and Australian iron-ore producers has started to loosen tight supplies on the seaborne market.

Persistently weak production from one of the world’s largest iron-ore miners – Vale – over 2018 to 2020 set the stage for the price rally alongside higher Chinese demand.

Vale is working at a current iron-ore production capacity of 330-million tonnes a year, which is poised to grow to 343-million tonnes by year-end and 400-million tonnes a year by the end of 2022.

Simultaneously, fellow iron-ore mining giant BHP has been delivering on the upper end of its production guidance at 253-million tonnes for the year ended June 30, while Rio Tinto has advised it will come in at the bottom end of its 325-million to 340-million tonnes guidance for the 2021 financial year.

Fitch Solutions expects iron-ore production to accelerate in coming years, bringing an end to the stagnation that has persisted since iron-ore prices hit a decade-low average of $55/t in 2015.

The agency forecasts that global mine output will grow by an average 2.4% over 2021 to 2025, compared with the 2% contraction observed over the previous five years.

This will result in a yearly production lift by 378-million tonnes to 3.5-billion tonnes by 2025.

Fitch Solutions highlights the possibility of the Chinese government implementing even more stringent policies that could stymie a rise in iron-ore prices abruptly.