The Reserve Bank of Australia says figures coming out of China suggest the country’s massive steel production boom, and subsequently the global iron ore market, may have reached their peak.
Minutes from the RBA’s recent board meeting detail their discourse relating to iron ore – a market very important to the Australian economy – and China’s key role in driving it.
“Members discussed the influence on the global iron ore and steel markets,” the report explains.
“They noted that China … with the world’s largest population, had reached a similar level of steel production per capita to that of industrialised economies.”
While iron ore prices have been supported at higher levels during this significant growth, the fact China has now reached that significant steel production per capita mark, means demand growth may now slow down in the iron ore market.
“Prices [are] expected to fall in the period ahead because of the ongoing expansion of global iron ore supply following an extended period of strong investment,” the RBA said.
“Members also noted that Chinese steel production capita was likely close to its peak and that growth in Chinese steel production would not add much to global demand for iron ore in the future.”
Another Asian giant could offer some reprieve in the future, however.
“Members observed that, in the longer run, there was potential for India to have a noticeable effect on commodity markets as investment in residential construction and transport infrastructure increased.”