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China, which for 25 years was the engine behind rising commodity prices, especially iron ore, is beginning to show clear signs of slowing down.
This expansion cycle that raised ore prices to historic levels now appears to have come to an end, according to Javier Blas, columnist for Bloomberg Opinion.
During this period, iron ore saw its price increase tenfold, becoming one of the most valuable commodities in the world and creating fortunes. However, What appeared to be an unshakeable market has begun to crumble, and the implications are profound.
What has changed in the commodities market?
For decades, commodities like oil, copper and soy received great attention, but iron ore, according to Blas, was the true protagonist of the Chinese economic bonanza.
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From the end of the 1990s, iron ore saw its prices soar and trading volumes triple, becoming one of the most profitable assets on the global market..
However, This golden age is about to end, and China, which was responsible for inflating this market, is now also the one pulling the brakes.
According to recent data, the price of iron ore fell to less than US$100 per ton, which represents a 55% drop compared to the record of almost US$220 per ton reached in 2021.
The change in the Chinese economic model, which now focuses more on services than on heavy infrastructure and construction, is behind this slowdown. Peak steel demand in China was reached between 2020 and 2024, and the prospect of a recovery in the sector appears increasingly distant.
Falling demand in China
During previous recessions, the China has always found ways to save its economy and, consequently, the iron ore and steel sectors. However, this time, the situation is different.
Javier Blas points out that the Chinese government is unlikely to resort to a debt-fueled construction boom as it has done in the past. The slowdown in steel consumption, especially the so-called “long steel” used in construction, represents a major challenge for the sector.
Hu Wangming, chairman of China Baowu Steel Group, the world's largest steelmaker, recently described a “harsh winter” for the industry, as quoted by Blas. He predicts the downturn will be “longer, colder and harder to bear” than initially expected.
This is because China, which accounts for more than half of global steel production, is undergoing a transformation that drastically reduces demand for this material.
The new generation of mines
As demand in China falls, new iron ore mines are beginning to operate, particularly in Australia and Africa.
These new operations, which are low-cost and highly efficient, could worsen oversupply in the global market. According to data from Macquarie Bank, the current iron ore surplus is one of the most severe on record, and this situation is expected to persist until 2028, with a significant impact on prices.
Prices must fall further to balance the market, leading to high-cost miners being forced out of the market. If production from the new mines enters the market as planned, around 200 million tonnes – or 12,5% of the seaborne iron ore market – will need to be shifted, which could pressure prices to fall to historically low levels, according to Javier Blas.
The impact on large mining companies
Despite the recent drop in prices, the world's largest mining companies are still making significant profits. Rio Tinto, for example, which mines minerals in Western Australia's Pilbara region at a cost of around $21 per tonne, continues to record robust returns on invested capital.
However, if prices fall to US$50 per tonne, the margins of these giants, including Vale, BHP Group and Fortescue, will be severely impacted.
Blas suggests that, given this scenario, there could be a new wave of mergers and acquisitions in the sector, especially if prices fall drastically. This movement could open doors for new entrants, such as the Simandou mines, in Guinea, and Onslow, in Australia, which would still be profitable even with lower prices.
The future of the iron ore market
With the entry of new mines, the iron ore market faces the possibility of excess supply in the coming years.
Javier Blas highlights that second and third tier mining companies, mainly in countries such as Brazil, India, Ukraine, South Africa, Iran and Kazakhstan, will be the most impacted by the drop in prices. These companies, which operate at higher costs of US$50 to US$100 per ton, may be forced to reduce production or even close their operations.
In contrast, larger miners with more efficient operations will be able to survive price swings, but will need to adjust their expectations regarding future profits.
According to Blas, A return to the ultra-low prices of pre-2000 is unlikely, but it is also unlikely that the market will see the high prices that marked the last decade again.
A new scenario in sight?
Blas concludes that the iron ore market is undergoing a significant transition and that mining companies need to adapt to this new reality.
The era of high prices and impressive profit margins may be coming to an end, and companies in the sector will face considerable challenges in the coming years.
The mergers and acquisitions scenario could intensify, as mining companies look for ways to survive in an increasingly competitive and saturated market.
The big question that remains is: how will mining companies adapt to this new reality? Will we see a new era of consolidation in the sector, or will the big miners be able to maintain their dominant position in the global iron ore market? Leave your opinion in the comments and participate in this crucial discussion about the future of the sector!
Anyone who has shares in mining companies should read our article!!! It seems to be very serious!!!!!
Sir, if it's true, I imagine that Brazil's decline in Vale and the rise in corruption in Congress is the same as an increase in misery and poverty...
I hope the price drops, they have already overcharged, although I don't believe that this will happen, companies will work according to demand, without taking risks.
Mineral exploration companies will adapt to the market, producing less.
South African mining companies of this commodity will be impacted by this price reduction. Due to the demand, transport companies were created and others hired to meet demand. The reduction will lead to a drastic reduction in the workforce both in the mines and in the transport companies, and may cause some mines to close, and families dependent on these services will be severely affected.