UBS Predicts Iron Ore Market Trends: Prices to Stabilize at $100 Per Ton Amid Supply Shifts and Demand Changes

The iron ore market has garnered attention as analysts at UBS share their forecasts for the coming years, particularly the outlook for 2025. As of the first quarter, iron ore prices have shown resilience, stabilizing at approximately $104 per ton, a level largely influenced by ongoing supply disruptions coupled with consistent demand.

Over the past year, prices for this fundamental commodity have fluctuated between $90 and $120 per ton, with significant peaks in May 2024 and lows recorded in September 2024 due to broader macroeconomic uncertainties. As we look ahead, UBS analysts anticipate a continuation of this trend, forecasting a mild surplus in the iron ore and steel markets for 2025. This situation echoes the dynamics seen in 2024, but UBS expects the surplus to expand considerably in 2026 and 2027, bolstered by developments such as the anticipated ramp-up of the Simandou project.

In their detailed analysis, UBS pointed out that the fundamentals indicate a moderate surplus for the current year, with expectations for a demand decrease of around 20 million tons (Mt), directly matching a predicted supply increase of the same amount. The forecast suggests this trend will intensify in the following years, particularly in 2026 and 2027, when supply is anticipated to swell by roughly 60Mt annually.

It’s worth noting that while demand is set to decline slightly from 2025 through 2027, there will be pockets of growth—particularly in steel production from countries such as India and regions within Southeast Asia, which could help offset anticipated downturns in China. However, UBS has taken a cautious stance on supply forecasts for 2025, adjusting them downwards because of adverse weather conditions and project-related delays, leading to a projected modest increase of merely 20Mt. Nonetheless, a stronger growth in supply is expected in 2026 and 2027 with ongoing developments in Australia, West Africa, and Brazil.

Looking ahead, UBS projects that iron ore prices will average around $100 per ton in 2025, tapering off to $95 per ton in 2026 and finally settling at $90 per ton in 2027. Currently, these figures align closely with the existing spot price of $102 per ton. UBS has identified a significant support level for prices at $85 per ton over the next few years, underscoring expectations based on the concerning 90th percentile of the iron ore value-in-use cost curve.

For stock traders, the implications are clear. UBS has expressed a preference for specific stocks linked to the iron ore market. For instance, they favor Rio Tinto (NYSE: RIO) over BHP Group Ltd (ASX: BHP) due to expected near-term growth in volumes. Additionally, Vale SA ADR (NYSE: VALE) is viewed favorably compared to Fortescue Metals Group Ltd (ASX: FMG) based on anticipated operational enhancements. However, UBS remains cautious regarding Kumba (JO: KIO) due to its current valuation.