BMI View: We have revised downwards our iron ore price forecast to an average of USD65/tonne in 2017compared to USD70/tonne previously as Chinese demand for the ore is showing signs of cooling earlierthan we expected. Nevertheless, government fiscal support to the infrastructure and construction sectors,despite being weaker than Q117, will ensure steel production holds up in 2017, sustaining demand for ironore and ensuring prices do not collapse to the lows of 2016.
Latest Developments & Structural Trends
We have revised downwards our iron ore forecast to an average of USD65/tonne in 2017 and USD50/tonne in 2018, down from our previous forecasts of USD70/tonne and USD55/tonne, respectively. Ourdownwards revision is based on our current expectation that the Chinese government's fiscal support tothe infrastructure and construction sectors will cool off earlier in 2017 than we previously expected.Having fallen from a peak in February 2017, iron ore prices are not set to rebound to their Q117 highs inthe coming years. On the contrary, we expect prices to remain on a broad downtrend over our forecastperiod to 2021. Although the drop in iron ore prices happened earlier than we anticipated, it is in line withour long-held view that the rally in prices had gone ahead of weakening fundamentals and would face acorrection in 2017.