The average iron ore price forecast this year will reach $US172.2 a tonne

Bank of America (BofA) has forecast iron ore prices to average $US172.2 a tonne this year and fall to $US143.8 a tonne in 2022 amid a drop in Chinese steel production in the near future and an increase in iron ore supply.

Bank of America (BofA) has forecast iron ore prices to average $US172.2 a tonne this year and fall to $US143.8 a tonne in 2022.

The financial group stressed that the Chinese government's market interventions are unlikely to push iron ore prices down sharply if global demand, including Chinese demand itself, continues to remain high combined with low iron ore supply.

CFR price fluctuations for iron ore type 62% iron delivered to Tianjin port (China) in the past 1 year (Photo: Trading Economics)

Closing last weekend's trading session (June 4), the CFR price for iron ore of 62% iron delivered to Tianjin port (China) reached $206.29/ton, down 4.6% from $216.12/ton – the highest level in the last 10 years set on May 12.

In the second half of May, the Chinese government repeatedly gave many signs that it will strictly control the situation of investment and price manipulation in the iron and iron ore market.

Major stock exchanges in China also tightened regulations on steel and iron ore trading in the term market as well as simultaneously advised investors on market risks in the context of the price of steel inputs in general,  iron ore in particular and hot increase steel products.

The strong bullish momentum of iron ore since the beginning of the year is mainly due to soaring demand from China; meanwhile, Australia's iron ore supply decreased due to unfavorable weather, brazil's iron ore exports were also disrupted due to the effects of the Covid-19 pandemic. China is now a country that purchases up to 70% of all iron ore shipped by sea globally.

The data shows that China's steel production in April 2021 reached a record high of 97.85 million tons, up 4.1% compared to March 2021 and up 15% over the same period in 2020.

Some observers say China's steel output in the coming months may fall because domestic steel prices in China are decreasing faster than the rate of decline of iron ore prices, thereby causing the profit margins of many steel mills to shrink.

On the supply side, there are some signs that iron ore exports may increase in the near future and put pressure on iron ore prices.