Iron ore has underperformed the wider metals complex as Chinese demand eases and supply remains ample. Still, analysts at Morgan Stanley argue the market is more resilient than it looks, pointing to a steelmaking mix that continues to favour blast furnaces and to rising costs that help underpin prices.
China’s steel output has softened while seaborne supply has increased. Crude steel production in China dropped by about 5% in 2025, but most of the decline came from scrap-based electric arc furnaces, limiting the impact on iron ore consumption.
Pig iron output, which depends on blast furnaces and iron ore, slipped by a more modest 2% year on year. As a result, iron ore demand held up better than headline steel figures implied. This helped the market absorb higher imports: China’s iron ore arrivals rose 2% in 2025, yet port inventories only began to build toward the end of the year.
Looking ahead, Morgan Stanley expects additional pressure on steel production in 2026, but believes the production mix will continue to support ore-based steelmaking. On the supply side, seaborne availability remains strong. Shipments from Australia, Brazil and South Africa increased by 2.2%, or roughly 30 million tonnes, in 2025, and early cargoes from Guinea’s Simandou project have already reached China.
At the same time, some sources of supply have weakened. China’s domestic run-of-mine iron ore output fell 2.8% in 2025 due to high costs, while Indian exports also declined.
From a cost perspective, Morgan Stanley estimates the 90th percentile of the global cost curve at around $80 a tonne, with close to 60 million tonnes of supply sitting above $100 a tonne. Higher oil prices and a softer US dollar could lift costs further.
The bank forecasts iron ore prices to average about $100 a tonne in 2026, with a low near $95 a tonne in the third quarter as the market moves into surplus. Its 2026 and 2027 forecasts sit 2% to 3% above consensus, reflecting cost support and expectations for relatively muted volatility, partly due to increased participation from China’s joint purchasing group. Iron ore fines with 62% Fe CFR have fallen about 3% over the past year.