Prominent economist Ross Garnaut has poured fuel on the flaming trash can that is Australia’s iron ore sector, predicting China’s steel production will fall this year, and will fall 25% by 2030.
Garnaut, a professorial research fellow at the University of Melbourne, made the prediction in an op-ed for the Australian Financial Review on Tuesday.
“Australia’s resources boom was a China boom,” Garnaut wrote.
“From 2007 to 2014, China accounted for more than the whole of the global increase in steel production. Chinese production rose from 489mt [per annum] to 823mt. The rest of the world’s production fell from 855mt to 839mt.
“Chinese production will fall this year.”
Garnaut said his Chinese sources believe steel production will fall from above 800mtpa today to just 600mtpa by 2030.
“With Chinese exports pouring onto world markets at an annual rate of 100mt and taking global prices down with them, and with environmental pressures forcing early responses, much of the shrinkage will happen early,” he added.
It’s a dire prediction, even for a sector which has become used to dire predictions.
For months, the iron ore sector has dealt with increasing supply and ‘slowing’ demand. Garnaut’s prediction would see iron ore demand do worse than ‘slow down’, though; it would see demand go into reverse.
“Falling demand for iron ore will run into the tsunami of new supply from Vale, BHP Billiton, Rio Tinto, Fortescue, Roy Hill, Sino Iron and others,” the economist wrote.
“The price trend is down until enough of the old or new supply capacity has been destroyed to balance the decline in demand.”
Since peaking at roughly US$190 a tonne in early 2011, dipping below US$100 in 2012 and then peaking again around US$140 in early 2014, the price of iron ore has nose-dived.
Iron ore wound its way downwards, with experts and banks revising and re-revising their long-term predictions to US$80 a tonne, then US$60 a tonne, and downwards. Overnight, the iron ore price closed at a decade-low mark of US$47.60 a tonne.