An increase in demand for steel, following peak construction season in China, has pushed iron ore prices back up to close to US$60 a tonne. Even as many steel mills struggle with excess capacity, expectations for steel demand has rebounded due to the growth of the Chinese property market. The global steel market has suffered from low prices for the past year, particularly due to excess supply and waning Chinese demand.
According to analysts at Citi, even as global steel demand is expected to remain flat this year, an additional 100 million to 120 million tonnes of low-cost iron ore supply is expected in the market. The increase in steel prices may also lead to the restart of higher-cost Chinese iron ore mines. For these reasons, analysts expressed pessimism regarding the pick-up in iron ore prices, cautioning that prices were still vulnerable to the weaknesses of the global steel market. Since iron ore prices fell from more than US$140 a tonne in early 2014, China has increased its dependence on foreign supply, with up to 86.7 per cent of iron ore being imports in the first two months of 2016. The World Steel Association also published numbers showing significant contraction in global steel demand, with an expected fall of about 0.8 per cent this year to 1,488 tonnes.