Iron ore price will decline below $US90/t next year, according to Australia’s biggest banks

Australia’s big four banks are predicting a gloomier year for the country’s most important commodity, even before Rio Tinto’s ‘Pilbara killer’ project shakes up the market.

Iron ore spent brief periods in the latter half of 2024 below $US100 a tonne but kept bouncing back above the century threshold, defying expectations. It is ending the year around $US104/t.

Forecasters are doubling down and believe that iron ore’s luck will finally run out from 2025, owing to waning Chinese steel demand and the sprawling Simandou mine in West Africa’s Guinea coming online before the end of next year. Rio Tinto is slated to start exporting its slice of Simandou from early 2026.

Rio owns 45 per cent in two of the four mining blocks that comprise the huge and high-grade mineral deposit. Simandou as a whole is set to add about 7 per cent more supply to the global iron ore market.

Simandou will begin to make a meaningful dent in the global market from 2026 or 2027, analysts say.

Commonwealth Bank still reckons the price will drop to $US80/t in 2025, in line with the Federal Government’s prediction for the year. NAB is slightly more bullish and has pencilled in $US87/t.

Westpac believes iron ore prices should “eventually start a slide towards $US90/t and lower as we move through (2025)”. It thinks the price will hit a floor at $US83/t by June 2026.

ANZ, meanwhile, has been reticent to make forecasts but noted in its most recent quarterly commodities review that Chinese steel demand is fickle and a 10 per cent shift in supply and demand dynamics could see prices dive towards the $US60/t barrier.

Chinese economic stimulus is a considerable question mark hanging over the iron ore price. Beijing has hinted more stimulus is on the way in 2025, but whether that impending cash injection will include steelmakers is yet to be determined.

The bearish outlook from the banks comes as WA’s Treasury this week reversed its conservative forecast of recent years to adopt a $US95/t expectation for the 2025 financial year. This marked a $US18/t increase from the price estimate on Budget day in May.

Every $US1/t increase in the steel-making commodity’s price brings about $93m into the State’s coffers and the fresh write-up gave Treasurer Rita Saffioti an extra $1.8 billion of estimated royalties.

For the 2024 financial year WA received just under $10b from iron ore royalties. Nearly 90 per cent of WA’s entire royalty income stream comes from iron ore.

The State’s Treasury over the past decade had taken a cautious approach to iron ore price projections after the State was burned by overly optimistic Budget forecasts during the Barnett government’s reign in the early 2010s.

The State lost its coveted AAA credit rating in 2013 after a gap between projections of $US122/t and the actual price below $US80/t decimated WA’s financial health.

Since that snafu the State Government of the day had preferred to adopt a target price that was far more conservative than prevailing market predictions.

Australia produces nearly 40 of the world’s iron ore, making it the most prolific country by a considerable margin. WA’s Pilbara region is responsible for the vast majority of Australia’s output.