China steel crackdown to hit iron ore prices: Goldman Sachs

Iron ore prices are tipped to fall to $US60 a tonne by year’s end as China enforces environmental controls on steel mills.

A steel plant in China’s Shandong province. Pic: Reuters

Further falls are predicted in the price of iron ore to around $US60 a tonne by the end of the year as China enforces environmental restrictions on steel production, says Goldman Sachs.

The latest forecast comes after falls of around 20 per cent in the iron ore price over the past three weeks, following a rally in July and August.

This morning, the spot price was up 0.8 per cent to $US63.40 a tonne.

The price peaked at $US95 a tonne in February and fell to $US53 a tonne in June. It was around $US80 in August.

Goldman Sachs said the price is “sitting at the intersection between policy and demand” and that China is likely to enforce steel production restrictions which would likely reduce demand.

“This has not been fully priced in our view, and we see room for iron ore prices to fall further,” Goldman Sachs said in a report released today.

“The July and August iron ore rally illustrates the impact of policy anticipation.”

Goldman Sachs said it is seeing a healthy demand for steel in China at the moment and that steel demand is “likely to remain solid in China over the next few months”.

But it expects local Chinese governments to place tough environmental restrictions on steel production.

“While there are significant uncertainties, we think that local governments are likely to carry out environmental cuts forcefully,” the report said.

“Where iron ore prices go from here depends on how strictly the environmental cuts will be implemented in Q4, relative to expectations.”