Investing.com — Iron ore has lagged the broader metals complex amid a cooling demand and sufficient supply. But Morgan Stanley analysts say the outlook is resilient given a steel production mix that still favours blast furnaces and cost pressures that set a higher price floor.
There is weaker Chinese steel output while seaborne supply has increased. China’s crude steel output fell abut 5% in 2025, but the decline was concentrated in scrap-based electric arc furnaces, limiting the hit to iron ore demand.
Pig iron production, which relies on blast furnaces and iron ore, fell a smaller 2% year on year. But Iron ore demand proved steadier than headline steel data suggested.
That dynamic helped absorb higher imports. China’s iron ore arrivals rose 2% in 2025, yet port inventories only built late in the year.
Morgan Stanley expects further pressure on steel output in 2026, but said the production mix is likely to remain supportive for iron ore-based steel.
Seaborne availability remains strong on the supply side. Shipments from Australia, Brazil and South Africa rose 2.2%, or about 30 million tonnes, in 2025, and initial cargoes from Guinea’s Simandou mine have reached China.
Though China’s domestic run-of-mine iron ore output fell 2.8% in 2025 on high costs, while Indian exports also declined.
Morgan Stanley estimates the 90th percentile of the global cost curve at around $80 a tonne, with nearly 60 million tonnes of supply sitting above $100 a tonne. Higher oil prices and a weaker US dollar could push costs higher.
Morgan Stanley sees iron ore prices averaging about $100 a tonne in 2026, with a trough near $95 a tonne in the third quarter as the market moves into surplus.
Morgan Stanley’s 2026 and 2027 forecast remain 2% to 3% above consensus, reflecting cost support and expectations of subdued volatility, partly due to greater involvement from China’s joint purchasing group. Iron ore fines 62% Fe CFR have fallen 3% in last one year.