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Iron ore’s price outlook divides analystsTom Richardson Australian Financial Review - Jan 3, 2022

After a record-breaking year during which iron ore prices topped $US200 a tonne, analysts are divided over whether the stunning bull-bear-bull run for Australia’s most valuable export will continue through 2022.The iron ore price has defied forecasts for a fall into the end of last year to reach four-month highs of $US126.71 a tonne on December 21, after the People’s Bank of China cut one-year lending rates to boost economic momentum across the world’s largest buyer of the steel-making ingredient.

Ben Cleary, CEO of Tribeca Investment Partners Asia: China’s infrastructure demand for iron ore should be particularly strong. Ben Cleary, portfolio manager at Tribeca Investment Partners’ Global Natural Resources Fund, is confident iron ore majors such as BHP Group, Rio Tinto and Fortescue Metals Group will enjoy another strong year.“I think iron continues to rally in the first quarter to $US150 a tonne or higher, well above current consensus expectations of $US100 a tonne,” he said. “China’s credit impulse is starting to expand after mostly contracting in 2021 and infrastructure demand for iron ore should be particularly strong.”Mr Cleary said that at the start of 2021, when spot iron ore fetched $US158 a tonne, consensus as measured by Bloomberg was for it to average $US108 a tonne through the year. As it turned out, spot prices averaged $US155 a tonne in 2021. Consensus expectations for 2022 are $US90 a tonne versus the December 31, 2021, spot price of $US120.75 a tonne, and Mr Cleary said the market’s expectations for 2022 were probably too pessimistic again.

Others expect increased supply to dampen any post-pandemic rebound in Chinese demand. Morningstar forecasts iron ore prices to average $US116 a tonne from 2021 to 2024 inclusive.“In the short term, the price can swing around – it’s been a volatile year,” said Mathew Hodge, Morningstar’s director of equity research.“The constraints around power in China appear to be easing from their height a few months ago. Monetary policy has also loosened, which could provide an important signal for downstream steel producers that the government and central bank will support the economy and demand will improve.”However, Mr Hodge warned 2022 could see supply increases from Australia and Brazil as Chinese demand flattens.“Iron Bridge is likely to start late 2022 for Fortescue, I expect modest incremental gains from BHP and Rio Tinto, and a further recovery from Vale in Brazil,” he said.“I expect carbon to be a constraint on steel production growth and hence iron ore demand. It will also be interesting to see if there’s a fundamental change in the way the economy allocates resources post the China Evergrande debacle.“It’s possible the demise could signal the end of growth in floor space construction in China, which is an important consumer of steel, and this would be consistent with the slowing rate of migration to cities, given most of China’s population is already urbanised.”