* Citi’s fourth annual global iron ore book
— We are downgrading our long-run iron ore price forecast to $55/t. This report presents our long-run outlook for supply, demand, and production costs, as well as updated regional views from our global team
* Declining demand
— Perhaps the greatest structural challenge facing the iron ore market is the rolling over of Chinese iron ore demand, driven by declining domestic steel demand and rising scrap availability. As a result, despite growth from other emerging markets, we forecast a decline in global iron ore demand over the 2020s.
* Lower Costs
— After the boom years in which mining industry costs rose sharply, costs are now declining even more rapidly. Partly this is due to the capex and price cycles, and partly due to external factors such as FX, oil, and freight. We examine the sensitivity of longer term operating costs and incentive prices under various cost scenarios.
* Cheap expansions
— For much of the past decade, the market’s focus was on rising costs and decreasing attractiveness of the new iron ore projects. However, the world’s two lowest cost producers – Rio Tinto and BHP – possess a pipeline of extremely low cost projects that should see combined production exceed 900 Mt by 2025, accounting for roughly 70% of global import demand.
* Benchmarking to long-run real prices
— The market has become accustomed to the elevated nominal prices of the past decade. However, inflation adjusted prices have averaged around $55 since 1900 in 2014$. Our forecast for long-run prices thus corresponds to a return to historical industry norms.
* Short-run bearish
— For our short-term outlook, please see our report from May 18, 2015: Iron Ore - Re-engage shorts as froth cools and fundamentals weaken. Our medium term price forecasts remain unchanged at around $40/t for 2016-2018.