Industrial Metals: Sugar high to come to an end later this year – CE

Iron ore prices are up by nearly a fifth year-to-date, while steel prices in the US and China are a quarter and two-fifths higher, respectively. Although strategists at Capital Economics anticipate a strong global economic recovery in 2021, their forecast of a slowdown in China’s economy means that industrial metals prices are set to end the year lower.

Ongoing slowdown in China and improving supply will mean that prices continue to slide in 2022-23

“Following a strong start to the year, we think that the tide will start to turn against iron ore and steel prices in the second half of 2021. First, we are sceptical that the recent strength in steel demand in both the US and China will be sustained for much longer; demand is likely to fall back as policy support in China is withdrawn and housing starts in the US moderate. At the same time, iron ore supply should continue to pick up, particularly in Brazil but also elsewhere, not least given that iron ore prices are now well above most producers’ marginal costs.”

“A rise in iron ore supply will significantly reduce the size of last year’s deficit and eventually flip the market into a surplus in 2022. As a result, we forecast that the price of iron ore will fall to $120 per tonne by the end of next year, from nearly $190 currently.” 

“Lower iron ore prices and weaker demand will also weigh on the prices of steel in the US and China, both of which we expect to sink lower over the next couple of years.”