Citigroup cuts iron ore forecast to $55 as demand shrinks

Pressure from a global glut and slowing Chinese demand pushed iron ore to a 10-year low of USD 46.70 a tonne in April. It has since recovered to stand at USD 62.10 on Tuesday, but is still less than half of last year's peak.

China's steel consumption shrank last year for the first time since 1981 and continued to contract in the first quarter of this year as overall economic activity slows. The economy is forecast to expand this year at its slowest pace in 25 years.

"As China's growth slows and re-orients, we see no single replacement for its role as the world's factory. In its place, we expect more decentralized, desynchronized and multipolar growth," said Citigroup, which sees world steel demand growing by less than 2 percent during 2015-2020 and largely flat through 2025.

Rising scrap availability in China will also cut its iron ore demand, the bank said.

"The government is encouraging setting up of collection centers, and though the government cancelled tax exemption for steel scrap recycling in 2011, we expect supportive policies in the future," it said.

While demand is expected to drop, low-cost supply is bound to rise, it said, with top miners Rio Tinto and BHP Billiton – the world's lowest cost producers – having the potential to boost combined output to above 900 million tonnes by 2025, about 70 percent of global import demand.