Written by Cecilia Jamasmie (mining.com)

Iron ore prices will continue to slide for at least the next half decade, averaging lower each year through to 2021 as Chinese demand for the ore is showing signs of cooling earlier than we expected, a new report published Friday by BMI Research shows.

In a revised outlook for the steelmaking raw material, BMI analysts say they expect prices to drop to $65 a tonne this year (down from a previous forecast price of $70), $50 in 2018, and decline to $44 by 2021.

“Although the drop in iron ore prices happened earlier than we anticipated, it is in line with our long-held view that the rally in prices had gone ahead of weakening fundamentals and would face a correction in 2017,” the report said. They also noted that while inventories are elevated at the moment (all time high of 132.4 5 million tonnes in March 2017), strong steel end-use expected for the rest of the year will drive re-stocking, which will in turn prevent prices to hit 2016 lows.

Major producers, backed by low costs, will continue to boost output and so drag prices down, the research arm of Fitch Group said in the report. “This will be exacerbated by the further winding down of China's fiscal spending and the capping of residential house prices from 2018 onwards,” it warned.

After peaking in mid-February, the steelmaking raw material fell into a bear market earlier this month as steel prices dropped and warnings about oversupply reappeared on the back fresh output coming from recently opened mines, such as Roy Hill in Australia, as well as Anglo American’s (LSE:AAL) Minas Rio and Vale’s (VALE) S11D in Brazil. [Read Iron Ore Free Fall Wreaks Havoc With Main Producers.]

Construction of Vale’s recently opened S11D mine, the company’s largest ever, in February 2016. (Image: Vale SA.)

Last year, ore with 62% content in the port of Qingdao...[climbed] over 80%, extending the rally into 2017 to hit $94.86 in February, the highest price since 2014, according to the Metal Bulletin. It then began a painful and abrupt downward trend, falling 12% in March and continuing to drop last month. Though on Friday, the commodity gained $1 per tonne to close at $61.38, according to the Metal Bulletin Iron Ore index.