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Australia lifts iron ore price forecast; cuts metallurgical coal

Sydney — Australia's Department of Industry, Innovation and Science has marginally lifted its forecasts for iron ore prices for the next couple of years while cutting back the expected price of metallurgical coal.

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In its December 2019 edition of the Resources and Energy Quarterly, the Canberra-based unit pegged the average iron ore price for 2020 at $61.70/mt, which is 3% higher than the $60/mt forecast it gave in its September edition. The 2021 forecast was lifted by 5% to $58/mt from $55/mt.

"Around 70% of seaborne iron ore is imported by China, where steelmaking has remained strong (and demand for pig iron high) despite a slowing growth rate in September and October," the report said.

"Since mid-2019, a substantial drawdown in Chinese iron ore inventories has helped to support iron ore prices even as steel production has softened in Europe, North Asia and India," it said.

The 2020 and 2021 forecasts continue to show a sharp decline from 2019 levels that are estimated at $80.10/mt, having been lifted by a global supply shortage following Vale's Brazilian tailings dam collapse.

The Department marginally tweaked its forecasts for Australian iron ore export volumes. It lifted 2020 levels to 864 million mt from 862 million mt and dropped 2021 volumes to 878 million mt from 881 million mt.

METALLURGICAL COAL

Metallurgical coal forecasts, meanwhile, have been reduced against the backdrop of rising supply and soft demand.

The Department dropped its metallurgical coal contract price forecast for 2020 by 7% to $153/mt from $164/mt while nudging 2021 higher by a dollar to $153/mt. That compares with an estimate of $187/mt for 2019.

For spot prices, it slashed 2020 prices by 8% to $154/mt and dropped 2021 by 4% to $152/mt. They were down from an estimated $181/mt in 2019.

The government unit said in recent months that the price has declined more than previously anticipated.

"Demand growth has been relatively muted -- against a backdrop of deteriorating global economic conditions -- and there has been weak ex-China steel output," it said.

"While Chinese imports of metallurgical coal have been strong, the seaborne market has been anticipating action by Beijing to enforce an (unspecified) annual cap, declining steel margins in China and lowing ex-China demand," it added.

It also noted that Indian steel demand has been weak while supply has been growing from Australia, Canada and Mongolia.

The Department left its forecasts for Australian metallurgical coal exports for 2020 and 2021 unchanged at 195 million mt and 199 million mt, respectively, which would be up from an estimated 184 million mt last year.

-- Nathan Richardson, newsdesk@spglobal.com

-- Edited by Manish Parashar, newsdesk@spglobal.com