Analysts aren’t optimistic about iron ore prices in 2025, will they be right and what will it mean for iron ore stocks?

In which direction will iron ore prices in 2025 go? Chinese trade data would suggest upwards, and indeed prices jumped 7% last week to surpass US$104.15. If Beijing unleashes new stimulus and it has the desired effect, the prospect of iron ore prices making a return to 2021 boom levels wouldn’t be completely impossible to comprehend.

But…investors should exercise caution here. There’s no guarantee that any stimulus will work. And analysts are bearish on iron ore in 2025, and are even more bearish on the prospect of dividends.

Iron ore prices in 2025 are expected to fall

Several analysts expect this. Westpac is one of the biggest bears, warning iron ore could fall to US$70 per tonne, which would be a 30% drop. Goldman Sachs isn’t so bearish but is expecting a drop – at least in the sense it is expecting US$95 per tonne this year and US$90 per tonne in 2026. CBA and AMP believe iron ore prices will fall to US$80/t, while NAB thinks US$87/t.

You can see there are varying degrees of ‘bearishness’ but none of them predict a return to 2021 levels. And there’s a key reason behind it whatever China does. No, it is not better weather this year or Trump tariffs – while tariffs may have an impact in depreciating the Chinese currency, any impact either weather conditions or tariffs will have will be nothing compared to the factor below.

Why?

An over supply in the market. Inventory levels are already close to record highs, and even more supply is coming online this year. It is all because of two major projects from Rio Tinto, one being its Western Range project in the Pilbara which will eventually deliver 25m tonnes a year, and the second is the Simandou project in Guinea. The latter is a US$23.2bn project that got final approval last year.

Actually, Simandou is two projects which are owned by different companies, but will use shared rail and port infrastructure to get iron ore to markets – 120mt of it! It will take until 2028 to ramp up to full production, but its mere coming online will be a big sign. Back to analyst thoughts, one opinion we forgot to mention above is Macquarie, which tipped last year prices could fall to US$75 per tonne once Simandou is fully ramped up in 2028. And of course, Rio Tinto is building other mines in the Pilbara to replace ageing ones they have.

Any chance of a bull run?

Of course Rio Tinto would not be investing in these projects if it was as bearish as the analysts above. And its Western Range project is in a joint venture with Baowu, a Shanghai-headquartered steelmaker – it too, must be optimistic.

This will all depend on Chinese demand for steel, which will depend mostly on property building, particularly residential real estate. Demand grew across the 1990s, 2000s and 2010s, then peaked in 2021 thanks to COVID-era stimulus. But slowing stimulus, and deliberate tightening measures saw demand fall from all time highs and not surpass that level since.

By the end of 2023, investment was 20% below the average 2019 level, and national new housing sales were almost 50% lower. The downturn was so rapid and so extensive, that some thought the whole economy would crash, or at the very least Evergrande would. The latter scenario came to pass after it lost 581.9bn yuan in 2021 and 2022 and ended up with 2.4tn (trillion) in debt. Even when the sun was shining, hay making was not profitable for it. In retrospect, a foreshadowing of what was to come in the West.

But Rio Tinto are overlooking this as it is expecting stimulus and for it to work. There has been some stimulus since September (surprise wage increases to government workers costing US$12-20bn and issuing US$409.2bn of treasury bonds which is an all-time record), but it is more focused on the consumer economy generally rather than the residential property market specifically.

The takeaway for investors

Any upward movement in Iron ore prices in 2025 will be predicated on the Chinese residential property market growing again. Not an entirely unreasonable prospect, but one conditional on stimulus having its desired effect. You could argue if Rio Tinto is investing, it is a sign of confidence this could happen. And yet Rio Tinto’s investments could be the very thing that drags down the rest of the industry.

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