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The price of iron ore had a superb 2020, rising from around $80 per tonne to over $150 by the end of the year. Prices rose even further in January, exceeding $170 per tonne. Despite the massive price rally since the start of 2020, strategists at Capital Economics are confident that prices will decline this year. 

Key quotes

“We expect demand growth in China, which accounts for approximately two-thirds of global consumption, to slow. New restrictions on the share of loans to the property sector should curb steel demand growth, and in turn, appetite for iron ore. In addition, we anticipate that a slowdown in broad credit growth and the gradual withdrawal of metals-intensive infrastructure fiscal stimulus will weigh on demand for steel in the construction sector.”

“We think that supply, particularly from Brazil (which makes up around 15% of global production), will pick up this year. Even pencilling in a conservative YoY increase in Vale’s output, in line with the very bottom of their 315-335m tonne output guidance for 2021, would boost Brazil’s supply by close to 6% this year.”

“A material slowdown in China’s demand growth coupled with a modest rebound in Brazilian iron ore supply, should drag the price of iron ore down to around $100 per tonne by end-2021.”