Under steel's shadow, iron ore to tumble 13pc in 2018

MANILA, Jan 26 (Reuters): The price of steelmaking ingredient iron ore will drop 13 per cent this year to around $60 a ton, pressured by plentiful supply, potentially slower demand in top consumer China and reduced profits on churning out steel, a Reuters poll showed.

While China's crackdown on pollution and curbs on steel output are set to continue in 2018, analysts said disruptions to the steel market could be more limited than last year, when the campaigns lifted steel prices and spurred a temporary rally in iron ore.

Benchmark 62-per cent grade iron ore for delivery to top market China will average $62 a ton in 2018, down from around $71 last year, according to the median estimate in a Reuters poll of 18 analysts.

"Through the year, iron ore supply growth, particularly in China and outside Australia and Brazil, should weigh on prices," said Commonwealth Bank of Australia analyst Vivek Dhar, who sees the commodity averaging $55 in October-December and $60 for the whole of 2018.

Chinese steel prices surged nearly 50 per cent in 2017, but spot iron ore prices eventually dropped 8.0 per cent on the year despite shadowing steel higher for months, dragged down by record stockpiles of the raw material.

Those stronger iron ore prices for most of 2017 boosted China's output of the commodity by 7.0 per cent and increased China-bound shipments from smaller suppliers India and Iran by double-digit per centages, bolstering exports dominated by Brazil and Australia.

Vale, the world's No 1 producer, is expected to add the most output among top suppliers in 2018, with plans to increase to 390 million tonnes from 365 million tonnes as it ramps up its massive S11D mine in Brazil.

While most top iron ore exporters have been focusing on margins over volume, Clarksons Platou Securities said it doesn't "expect Chinese steel production to grow enough to absorb all of the world's expansions", seeing "a gradual decline in pricing".

Slowing growth in China's property sector could cut steel production in the country to 820 million tonnes from last year's record 831.7 million tonnes, said Barclays, which sees iron ore falling to an average $50 a ton in the second quarter from $70 in January-March.

Chinese steel output rose last year despite government-imposed curbs and a pollution crackdown, with mills chasing strong margins amid a rally in prices for the construction material.

Those margins, which touched their strongest in two decades at up to 2,000 yuan ($316) a ton, are likely to drop as winter production restrictions, in place from the middle of November, are lifted in mid-March.

Chinese steel prices have already fallen 4.0 per cent from December's three-month high, with spot iron prices down 5.0 per cent from this year's peak, standing at $75 on Thursday.