2020 was a smashing year for iron ore prices and iron ore producers.
And the good news for iron ore continues. The Iron ore price is up today 1.7% to US$166.90 a tonne.
Of course, higher prices benefit iron ore producers too.
A great year for iron ore
Iron ore prices fell at the end of January 2020, on concerns that the coronavirus pandemic would hit demand. The fear was that the outbreak would affect China’s demand for Australian iron ore exports. China is the largest iron ore importer in the world.
Turns out those fears were overblown. Prices recovered from under US$100 a tonne early in 2020 along with demand as China pushed for a recovery.
And then, of course, supply took a hit too when Brazilian Vale run into production problems from the pandemic and a dam collapsing, which only boosted prices even more. Vale is the world’s second-largest iron ore producer after Rio Tinto.
Will the iron ore boom continue in 2021?
Capital Economics is predicting today iron ore prices will fall this year.
Here’s why Capital Economics expects things to slow down, courtesy of the Australian Financial Review:
‘We expect demand growth in China, which accounts for approximately two-thirds of global consumption, to slow. Indeed, the factors that acted as a tailwind for the property sector, and in turn, iron ore demand growth in 2020, will turn into headwinds this year.’
That along with slower broad credit growth, less stimulus, and Vale picking up production this year, they expect iron ore to fall to US$100 a tonne by the end of the year.
Things will very much depend on China’s demand staying strong but the fact that Vale is struggling to bring production up anywhere close to the 385 million tonnes it produced in 2018 and has flagged a guidance of 315 and 335 million tonnes for 2021 could put a floor on prices.
Strong iron ore prices have helped strengthen the Aussie dollar. So far since March, the Aussie dollar has increased by about 35% against the US dollar.
How will the Aussie dollar move next?
Check out our latest report ‘Will the Aussie Dollar Enjoy a Post-Pandemic Resurgence?’ where Rum Rebellion editor Greg Canavan explores this question.
To download this free report, click here.
For The Rum Rebellion