Iron ore and coal prices to remain strong in 2018

Iron ore and coking coal prices, two key ingredients for steel production, should remain high for the remainder of the year, Macquarie Bank said in a recent report.

The influential Australian bank has revised its earlier estimates for iron ore and coking coal prices by a wide margin, citing an overall improvement in the Chinese economy, which consumes the vast majority of the world's steel materials.

Macquarie previously estimated the 62% ore spot price at an average of $ 50 per tonne in the first quarter of 2018, but now estimates it at around $ 73 per tonne.

“Our preliminary forecasts were for a faster closing of the discount for low-grade iron ore as prices are expected to be driven by both increased supply of high-quality products and lower demand for steel,” the bank explained. However, given the growth prospects for at least the next six to nine months, we assumed that discounts on the lower grade ore would be less than previously estimated. ”

According to the data, benchmark iron ore traded at $ 76.08 per tonne, down slightly from Aug. 22 at $ 79.65 per tonne.

Since June, there has been an increase in the volume of shipped materials, mainly due to the increase in steel production in China. Steel production in China rose more than 10% in July from a year ago to a record 74 million tonnes, as traders worry that steel shipments will decline in the new year. Beijing wants to cut production by as much as 50% during the winter months to combat smog, especially in the capital and surrounding areas.

Turning to coal, Macquarie said coking coal prices will also stay higher for longer than previously thought.