Fitch Ratings has last week published a significant upwards revision to its 2021 iron ore price assumption due to tight market supply that is expected to continue in the next couple of years.

Iron ore in 2021 is now seen averaging at $125/tonne cfr China for 62% Fe fines, versus the previous assumption of $75/t and the actual 2020 value of $108/t.

The firmer outlook is also driven by the absence of material new projects over a long period that could offset depleting mines, Fitch says. “Vale has cut its production guidance for 2021, resulting in no supply response to growing demand, with all large-scale iron ore producers operating at almost full capacity,” Fitch tells. “Inventories are running low, while we expect additional demand linked to US and European economic stimulus packages.”

The credit rating agency’s assumption for hard coking coal prices has been revised up $5/t to $135/t fob Australia in 2021. This is versus the actual 2020 price of $123/t. The improvement is due to robust demand from the steel sector, supported by recovering steel production in India, Japan, South Korea and Europe. Another factor is rebalanced flows of seaborne coal despite ongoing restrictions on Australian coal supply into China.