Westpac has issued a warning that iron ore prices are expected to plunge by 20 per cent next year. This forecast is driven by anticipated reductions in Chinese steel output and a surge of new supply entering the market, which will exacerbate inventory build-up at ports. Despite analysts previously predicting a fall below $US100 a tonne later this year, iron ore futures in Singapore were trading at $US102.45 a tonne on Wednesday.
Westpac strategists believe a price correction is inevitable as the cost of Australian steelmaking ingredients—iron ore and metallurgical coal—continues to rise in China, while Chinese steel prices decline. This divergence has resulted in the widest gap since mid-2024. A similar correction occurred last year when prices of both commodities fell by 21 per cent, and Westpac anticipates a repeat of this pattern.
According to Westpac senior economist Justin Smirk, the current market dynamics reinforce expectations of an iron ore price correction as we approach 2026. Westpac forecasts a 20 per cent decrease in iron ore prices, reaching $US83 a tonne by the end of 2026. Analysts also anticipate that the influx of new supply from Guinea will push iron ore markets into a surplus next year.
