A conveyer belts dumps iron ore onto a pile at a transfer and storage center operated by the Shanghai International Port Group in Shanghai, China on 26 January 2010.

Phoebe Sedgman

A WORSENING mismatch between global iron ore supply and demand prompted JPMorgan Chase to reduce price forecasts through 2018 as data from China showed steel output in the largest producer shrank in the first quarter.

The raw material will average $51 (R616) a ton this year, 20 percent less than previously forecast, the bank said in a report yesterday. The 2016 outlook was cut 22 percent to $50 a ton, while predictions for 2017 and 2018 were reduced by 18 percent and 8 percent, respectively, it said.

Iron ore collapsed below $50 a ton this month as surging low-cost output from BHP Billiton and Rio Tinto fed a surplus and demand in China faltered. Growth in Asia’s largest economy slowed in the first quarter to the weakest since 2009 as steel production fell, data showed yesterday.

Australian Treasurer Joe Hockey said he planned to speak with China’s finance minister about demand for the country’s biggest export.

“Our analysts do not expect near-term production cuts from the majors, partly owing to fears of a loss of market share,” JPMorgan said. “Indeed, it is because of a projected aggressive supply expansion that prices are falling.”

Ore with 62 percent content at Qingdao declined 0.9 percent to $50.33 a dry ton yesterday, according to Metal Bulletin. It fell to $47.08 on April 2, the lowest since 2005, based on daily and weekly data from Metal Bulletin and annual benchmarks for ore delivered to China from Clarkson. It was 29 percent lower in 2015 after losing 47 percent last year.

“What started the fall… was a realisation that supply was coming on much earlier than expected,” Joel Crane at Morgan Stanley said. “Seaborne cargoes started increasing faster than people thought.”

The outlook for iron ore, used to make steel, is tied to China, which accounted for 51 percent of global steel output in February, according to the World Steel Association. The next big producer, Japan, accounted for 6.6 percent.

There was no firm floor in sight for prices, HSBC Holdings said in a report on Tuesday. – Bloomberg