Industry research and consulting firm Fitch Solutions Country Risk & Industry Research has revised its iron-ore price forecast for this year to $125/t, up from its previously forecast $110/t.
These price expectations are driven by ongoing optimism and a stronger-than-expected recovery in the Chinese economic recovery, the firm says.
Fitch Solutions believes market optimism, coupled with an improving demand outlook, will support prices in the near term. China’s pivot away from its zero-Covid-19 policy and minimal resurgence of Covid-19 in the aftermath, combined with strong domestic sales and purchasing managers' index figures bode well for metal demand in 2023, the firm says.
Fitch Solutions expects China's economy to outperform developed markets this year, with growth to come in at 5% year-on-year, in line with the latest growth target released by the government, which marks a strong improvement on the 3.3% growth of last year.
A softer dollar is also expected this year, which will place a floor under metal prices in general, as emerging market demand for commodities priced in dollars will strengthen. Fitch Solutions says price strength will likely be capped by several factors that will prevent iron-ore from reaching the 2022 highs of nearly $150/t this year.
On the demand side, Fitch Solutions expects Chinese demand to continue with its positive momentum over the rest of the year. China will be the main driver of demand recovery, while other regions will struggle with lingering issues from last year.
However, China's increase in demand may not translate to rallying prices owing to its centralised iron-ore buyer China Minerals Resource Group. The entity aims to exert Chinese influence over critical mineral imports such as iron-ore, putting limitations on price upside.
In other developed markets, such as the US and the European Union (EU), Fitch Solutions says the demand outlook remains weak as global growth slows.
Economic activity might see an upside through infrastructure spending. However, ongoing war disruptions in the EU, recessionary fears, a continued high inflationary environment and fiscal tightening will place a cap on iron-ore demand and prices this year.
On the supply side, Fitch Solutions expects production to grow steadily this year across major producers. Many have posted stronger production quarter-on-quarter, while production guidance is also expected to grow marginally.
The firm says it expects greenfield mines to grow production over the rest of the year.
In the long term, however, Fitch Solutions still expects iron-ore prices to follow a downward trend, with prices expected to decrease to $50/t by 2032.