Iron ore has trailed the broader metals complex amid weaker demand and growing availability, but Morgan Stanley's analysts contend the market's underpinnings remain intact. Their view rests on a steel production mix that continues to favour blast furnaces - which consume iron ore - and cost pressures that they say establish a higher floor for prices.
Chinese steel activity has softened. Crude steel output in China declined about 5% in 2025, a drop that was disproportionately driven by reduced activity at scrap-based electric arc furnaces rather than blast furnace operations. That distinction matters because pig iron - produced in blast furnaces and a key driver of iron ore consumption - recorded a smaller contraction, down roughly 2% year on year. As a result, iron ore demand proved steadier than the headline steel numbers might imply.
That steadiness helped accommodate increased imports. Chinas iron ore arrivals rose 2% in 2025, and port inventories only began to build late in the year, suggesting the market absorbed a sizeable portion of inbound cargoes without an immediate glut.
On the supply side, seaborne availability expanded. Shipments from Australia, Brazil and South Africa increased 2.2% in 2025 - equivalent to about 30 million tonnes - and initial cargoes from Guineas Simandou mine have reached China. At the same time, Chinas domestic run-of-mine iron ore output fell 2.8% in 2025 amid high costs, while Indian exports also declined.
Cost considerations are central to Morgan Stanleys outlook. The bank estimates the 90th percentile of the global cost curve at roughly $80 a tonne and identifies nearly 60 million tonnes of supply positioned above $100 a tonne. Those higher-cost suppliers are vulnerable to increases in inputs - and Morgan Stanley notes that higher oil prices and a weaker US dollar could push costs further upward.
Taking these factors together, Morgan Stanley projects iron ore prices to average about $100 a tonne in 2026, with a trough near $95 a tonne in the third quarter as the market moves into surplus. The firm's 2026 and 2027 forecasts sit 2% to 3% above consensus, a gap the analysts attribute to cost support and an expectation of subdued volatility, in part because of greater involvement from Chinas joint purchasing group.
Market pricing has already reflected some of the pressure: iron ore fines 62% Fe CFR have fallen 3% over the last year.
Implications for markets and sectors
The interplay between a production structure that still relies on blast furnaces and an expanding seaborne supply base will be relevant for commodities traders, steel producers, and downstream industries tied to steel-intensive activity. Cost pressures concentrated at the higher end of the global supply curve could support prices even as headline supply increases.