We expect the iron ore price will fall in the second half as peak tightness was in 2Q, while the record price is incentivising supply. We have raised our 2021 and 2022 forecasts as iron ore has overrun our previous prices to reach record levels in 2Q. However we have maintained a downward trajectory to prices, and now expect larger surpluses and have reduced forecasts at the back end of the deck. The record price is leading to more supply, most disturbingly from China itself, which stats indicate used only 10Mt of seaborne iron ore to produce an additional 63Mt of steel in the first five months. 

1H21 had ROW steel production recovering and China steel output surging, while supply stumbled. Rio Tinto’s shipments seemed particularly weak in April and May and probably, as a consequence, Pilbara Blend – a mainstream brand – hit eight year lows at China ports, supporting prices from May despite steel prices declining. We expect that ore shortfall will be corrected in 2H, and with steel profits thin, rising ports stocks should unwind prices. At the same time, the Chinese authorities seem unhappy with the iron ore price and are seeking to cool steel demand. Infrastructure spending has started declining on a lack of funding issuance, which may reflect the authorities retracting stimulus. Property may also be cooling under restrictions, but manufacturing FAI remains buoyant.