While recent efforts by the China government to prop up its failing economy have helped to keep the iron ore price above the psychological US$100 a tonne barrier, Goldman Sachs can’t see them remaining so unless the Middle Kingdom makes greater efforts to revive its consumer spending.
As a result, the broker expects China’s real GDP growth to fall to 4.5% in 2025, down from 4.9% in 2024, around half what it was in 2021.
According to the broker’s UK-based commodities researcher Aurelia Waltham, the rising iron ore stocks at Chinese ports, a depreciation in China’s currency and lower Chinese steel demand weighing on prices present a perfect storm of bad news for Australia — and not just miners.
Based on Waltham’s numbers, she expects the second-month Singapore Exchange (SGX) iron ore contract to average US$95 a tonne in 2025 and then fall to US$90 a tonne in 2026. Once the final shoe in iron ore’s fall finally drops, she expects the dirty metallic iron to end 2026 at US$84 a tonne — 20% down on where it trades today ($US105 a tonne).
Waltham also expects a wave of new [iron ore] supply, mostly from Australia and Guinea over the next two years to keep the market in surplus… so much so that Waltham expects Chinese port stocks to rise by an additional 15 million tonnes in 2025 and 40 million tonnes in 2026.
Underscoring her worst case outlook for the iron ore price is a further deterioration in Chinese steel net exports. Much of this is contingent on both continued efforts to investigate anti-dumping by major export destinations, plus pressure from ex-China steel-producing companies to increase China’s barriers to export.
According to a recent 2025 outlook note by ING, China’s share of global steel demand is about to drop below 50% of global steel consumption for the first time in six years and further falls are expected.
“In a scenario where China net steel exports fall gradually back to the 2016-2020 average by the end of 2026 (4.4 million tonnes per month, just under 10 million tonnes in our base case), we believe that the iron ore price could average below $US80 a tonne in 2026,” said Waltham.
Unsurprisingly, the expected fall in commodity exports to China is also expected to have a material impact on federal government revenue projections.
While iron ore prices and export volumes are the single biggest casualties from China’s undercooked efforts to revive their economy, the Australian Federal Budget isn’t far behind.
In light of a forecast slump in commodities exports to China, Treasurer Jim Chalmers has flagged the first downward revision to company tax receipts since the pandemic with the budget bottom line expected to take a $8.5 billion hit by the end of the decade.
Add rising government spending to falling company tax revenue and Chalmers is faced with a forecast deficit of $28.3 billion for financial year 2024. Over the next four years Chalmers expects the China slowdown to slash Australia’s mining exports by $100 billion-plus.
Interestingly, while Beijing’s plans to embrace a more proactive fiscal policy next year gave a recent kicker to some commodity prices (lithium, iron ore and gold) the Reserve Bank was quick to flag a pending trade war between China and the U.S. — which could be bad news for Australia.