The world's top iron ore exporter Australia cut its outlook for global steel demand, joining a growing chorus of warnings that trade tensions and slowing growth are hitting the sector hard.
"Risks to the outlook have risen in recent months, as a range of potential downsides emerge," the Australian government said in a quarterly report, citing trade tensions, the possibility of an earlier-than-expected global downturn and prospects of a U.S. recession. World steel production and consumption will be lower than previously expected this year and next, it said.
Top steelmakers globally have painted a bleak outlook for the sector as the prolonged trade war drags on growth and a first-half jump in iron ore prices hurt profits. Output in China, which accounts for more than half the world's steel, faces competing pressures as falling domestic consumption is set against rising export prospects and potential stimulus measures, the report said.
As well as trade tensions, potential catalysts for a sharper global downturn include slowing U.S. growth, high debt in China, and a deterioration in Germany and other European countries, the Department of Industry, Innovation and Science said in the report. The overall effect remains difficult to project as many countries are likely to respond with stimulus measures that typically involve infrastructure development and greater production of steel, it said.
On the raw materials side, iron ore prices -- that surged to more than $120/t this year after a fatal dam disaster in Brazil and supply disruptions in Australia -- are set to fall. The department predicts prices will drop to $57.5/t in 2021 and $61.4/t in 2020 from an average $80.1/t this year as the market returns to balance, maintaining forecasts from its June quarterly report. Projections refer to spot ore with 62% content, FOB Australia.
The view from Australia, the world's biggest iron ore shipper, joins other bearish outlooks. Morgan Stanley and Macquarie Group Ltd. rank iron ore among their least-preferred commodity picks and China's largest manufacturer of special steel products has predicted a drop in prices in 2020.
China's iron ore imports are set to decline through 2021 and the country's steel mills will use more scrap, according to the report. Australia's exports are forecast to contract this year, albeit a smaller decline than previously predicted, before increasing in 2020 and 2021, it said.
(Writing by Jessie Jia Editing by Harry Huo)
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