Iron ore: UBS raises long-term iron ore to US$93/t as Global South demand, iron-unit constraints and higher costs outweigh Simandou over time.

Overview

UBS presents a long-term iron ore thesis rather than a single-company call. It raises its 2035 real-price assumption to US$93/t for 61% Fe CFR China, arguing that demand is changing rather than disappearing, iron-unit supply is tighter than headline ore tonnage implies, and the cost curve has structurally risen.

Core views

UBS raises its long-term iron ore price forecast to US$93/t for 61% Fe CFR China in real 2026 dollars, effective 2035, from US$85/t previously. The new assumption is 12% above consensus of about US$83/t. The institution’s central argument is that three structural forces are underappreciated: a new phase of steel demand, slower growth in contained iron supply than in headline ore tonnes, and persistently higher production and replacement costs. UBS’s seaborne balance remains in surplus throughout its forecast horizon, especially while Simandou ramps up, but it argues that modest surpluses can still clear near the upper end of the cost curve rather than at lower-cycle incentive prices. On demand, UBS argues that China’s property-related steel consumption is declining but is increasingly offset by manufacturing, infrastructure, energy, shipping and exports. Non-construction steel demand surpassed construction-related demand in China in 2026, while indirect steel exports through machinery, vehicles, appliances and shipbuilding rose to a sustained 130-150Mtpa run rate in 2024-26, from roughly 100-120Mtpa in 2020-23. High blast-furnace utilisation and low scrap substitution mean that this industrial and export-oriented activity remains iron-ore intensive. UBS does not characterize China as entering a new structural growth cycle; rather, it sees the manufacturing pivot protecting iron ore demand from a sharper property-driven decline. The report’s larger demand offset comes from the Global South, defined in UBS’s modelling to include countries such as India, Indonesia, Vietnam, Malaysia, the Philippines, Thailand, Mexico, Brazil, Turkey, Saudi Arabia, the UAE, Egypt and Iran. This population is about 2.9 billion today and is projected to reach 3.2 billion by 2040. UBS expects industrialisation, urbanisation, rising incomes, manufacturing investment and infrastructure development to lift steel demand sufficiently to more than offset China’s retreat. Its model projects global crude steel production rising from 1,800Mt in 2025 to 2,005Mt in 2035, even as China’s production falls by about 104Mt to 852Mt by 2040. Global South production rises about 217Mt, or 50%, by 2040. UBS estimates that the Global South’s emergence pushes global steel demand 8% higher by 2035. For supply, UBS argues that contained iron units, not wet or dry tonnes alone, determine market balance. Major producers have reduced product grades: Rio Tinto’s Pilbara Blend fell to 60.8% Fe from 61.6%, BHP has reduced grades in MAC and Newman high-grade fines, and Fortescue has introduced a 55% Fe product while ceasing higher-Fe West Pilbara Fines. UBS estimates that observed grade decline required more than 50Mt of additional ore supply in 2026 versus earlier forecasts. It therefore models mine-by-mine Fe-grade trends through 2035 and concludes that depletion, grade degradation, higher capital intensity and subdued capex restrain growth in usable iron units even after Simandou. Simandou is central to the near-term surplus narrative, but UBS places its 120Mtpa nameplate supply against around 800Mt of industry depletion requiring replacement by 2035; Rio Tinto estimates roughly 650Mt is uncommitted. UBS’s own bottom-up mine analysis identifies about 550Mt of depletion by 2035, likely an underestimate because some depleting pits within larger mining hubs are not separately captured. The visible top-30 project pipeline supplies about 502Mt of incremental output by 2035, with around 326Mt committed and about 176Mt dependent on development or suspended projects. UBS argues that a further 100-300Mt may still be needed to replace depletion. It also notes that post-Simandou growth capex is projected to be about 60% below 2018-26 spending and 78% below 2009-17 spending, before inflation. Cost support is the third pillar. UBS finds that iron ore-specific cost inflation has materially exceeded broad inflation measures and sees little scope for a sustained return to prior-cycle unit-cost lows. On a 61% Fe CFR China value-in-use basis, the 90th and 95th percentile costs are about US$92/t and US$106/t, respectively; spot around US$95-96/t trades near the 93rd percentile. UBS estimates a price of US$85/t would require about 255Mt of supply to become cash negative or exit, while US$80/t would require 357Mt, compared with Simandou’s 120Mtpa nameplate addition. Costs across much of the curve have risen by about US$35-40/t since the minima, while higher labour costs, longer haul distances, rising strip ratios, lower grades, sustaining and growth capex, heritage management and decarbonisation expenditure continue to pressure costs. UBS estimates underlying “work done” at the 50th percentile increased at roughly a 4.2% CAGR from 2016 to 2026. The price path remains cautious before the long term. UBS is in line with or below consensus through CY26-CY28—up to 3% below it—as Simandou ramps and surpluses rise. From CY29, it expects demand resilience and supply constraints to tighten the market more effectively, taking its forecast to 3-12% above consensus through the long term. UBS expects benchmark prices to clear around the 90th cost percentile near term and rise toward the 95th-97th percentile later. Its forecast profile is US$101/dmt in 2026, US$95/dmt in 2027, US$92/dmt in 2028, US$97/dmt in 2029 and US$101/dmt in 2030 for 62% Fe CFR China; its long-term nominal 2035 assumption is US$116/dmt. For covered equities, the higher long-term deck generally raises net present values, but the effect is moderated by lower realization assumptions, higher long-term costs and capital intensity, wider low-grade discounts, and higher discount rates from long-bond yields. UBS views quality, cost position and degree of iron-ore exposure as decisive. It maintains Neutral ratings on BHP, Rio Tinto, Vale, Fortescue and Deterra Royalties; maintains Buy on Mineral Resources; and initiates Champion Iron with a Buy rating. BHP benefits from WAIO’s relative cost position but has diluted iron-ore sensitivity because copper is 55% of UBS-estimated FY27 group earnings. Rio Tinto benefits from Pilbara Blend and Simandou quality but faces substantial capital intensity. Vale’s lower US$15 target reflects freight and lower 2H26-27 shipment assumptions outweighing the higher long-term price. Fortescue has high iron-ore leverage but is most exposed to widening low-grade discounts and elevated capex. Mineral Resources is supported by Onslow Iron volume and cash-flow ramp-up, while Champion Iron has concentrated long-term exposure to the higher price deck. Deterra offers direct royalty leverage with no operating-cost exposure.

Analysis framework

UBS combines a long-term country-level steel-demand model with mine-level contained-iron supply analysis and a value-in-use cost curve. It first assesses changing demand drivers in China and the Global South, then adjusts supply for grade decline and depletion, and finally uses cost-curve percentiles and projected market balances to solve for the long-term price path and assess equity valuation effects.

Methodology notes

• Industry AnalysisSupply-demand framework

  Contained-iron supply-demand modelling to 2035

  UBS compares seaborne ore supply and demand after adjusting for Fe grades and depletion, rather than relying solely on headline ore tonnes. This produces a tighter long-term balance than a tonne-based view.

• Industry AnalysisCost curve analysis

  Value-in-use iron ore cost curve

  UBS uses cost percentiles to assess the level at which enough supply would lose cash or exit, framing prices as likely to clear near the upper end of the cost curve even with modest surpluses.

• Other

  Kuznets intensity-of-use, steel-stock saturation and econometric elasticity models

  UBS applies three country-level approaches to project apparent steel use from industrialisation, income, accumulated steel stock, GDP growth and urbanisation through 2035-40.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BHP (BHP.AX)

  Higher long-term iron ore assumptions lift NPV, but diversified earnings reduce sensitivity.

  Strengths

  WAIO is structurally well positioned and UBS says it is the only major Pilbara producer to achieve real unit-cost reduction since FY22.

  Weaknesses

  Copper represents 55% of UBS-estimated FY27 earnings, and Escondida grade decline offsets part of the iron ore benefit.

  Comparison

  Better cost cushion than peers against wider discounts and softer realizations.

  Risks

  Wider discounts, softer realizations and grade decline at Escondida.

• Rio Tinto (RIO.AX)

  Higher long-term prices lift NPV, while Simandou contributes both quality advantages and additional supply.

  Strengths

  Pilbara Blend and Simandou ramp-up provide relative protection from widening low-grade discounts.

  Weaknesses

  Simandou and Pilbara replacement capex temper free-cash-flow conversion.

  Comparison

  Quality positioning is a relative advantage as grade spreads widen.

  Risks

  Capital intensity, Simandou supply additions and lower sensitivity as copper, aluminium and lithium grow in the earnings mix.

• Vale (VALE3.SA)

  Higher long-term iron ore prices are more than offset in the target-price change by freight and shipment assumptions.

  Strengths

  UBS highlights solid cash generation and shareholder returns.

  Weaknesses

  Lower shipment forecasts through 2H26-27 and higher freight assumptions.

  Risks

  Freight, shipment execution, commodity-price volatility, regulatory changes, disruptions, labour issues and weather.

• Fortescue Metals Group (FMG.AX)

  A near-pure-play with high long-term leverage to iron ore, but substantial quality and cost offsets.

  Strengths

  Iron Bridge is a potential positive higher-grade swing factor.

  Weaknesses

  Lower-grade product exposure, elevated decarbonisation and sustaining capex, cost creep and realization drag.

  Comparison

  UBS sees FMG as most exposed to widening discounts among the major producers.

  Risks

  Wider low-grade discounts, softer realizations and free-cash-flow pressure from capex.

• Mineral Resources (MIN.AX)

  UBS maintains Buy, with Onslow Iron expected to drive a volume and cash-flow step-change.

  Strengths

  Onslow Iron ramp-up and the POSCO transaction’s reduction of future lithium capital requirements.

  Weaknesses

  More cautious near-term iron ore profile and lower realized pricing assumptions.

  Risks

  Simandou-related near-term price pressure and wider discounts.

• Champion Iron (CIA.AX)

  UBS initiates Buy because its concentrated iron ore exposure gives it high leverage to the higher long-term price deck.

  Strengths

  Higher US$93/t long-term pricing materially improves project economics and valuation.

  Weaknesses

  More conservative realization assumptions and higher long-term costs are incorporated.

  Comparison

  High long-term sensitivity relative to more diversified miners.

  Risks

  Concentrated exposure to long-term iron ore-price assumptions.

• Deterra Royalties (DRR.AX)

  The royalty structure gives direct, cost-free leverage to the higher price deck.

  Strengths

  No operating-cost exposure and higher-grade MAC product insulation from cost inflation and widening discounts.

  Weaknesses

  Softer realizations remain the meaningful offset.

  Comparison

  UBS describes DRR as the cleanest direct long-term price exposure among covered names.

  Risks

  Higher long-bond yields weigh on valuation and softer realizations can reduce the benefit.

Key data

• Long-term iron ore forecastUS$93/t61% Fe CFR China, real 2026 dollars, effective 2035; raised from US$85/t and 12% above consensus.
• Global crude steel production1,800Mt in 2025 to 2,005Mt in 2035UBS expects growth to slow materially after 2030 as China contracts.
• Global South population~2.9 billion today; 3.2 billion by 2040A core source of projected incremental steel demand.
• Simandou versus depletion120Mtpa versus ~800Mt depletion to 2035UBS argues headline new supply does not offset industry-wide replacement needs.
• Cost-curve supportUS$92/t at the 90th percentile; US$106/t at the 95th percentile61% Fe CFR China value-in-use basis.
• Spot iron ore price~US$95-96/tAround the 93rd percentile of the value-in-use cost curve.
• Iron ore supply required to lose cash at lower prices~255Mt at US$85/t; 357Mt at US$80/tUBS’s estimate of supply pressure implied by bearish price scenarios.

Impact & implications

UBS concludes that Simandou can create near-term surpluses without forcing a return to lower-cycle prices because higher replacement costs, grade decline and disciplined investment constrain effective supply. The report sees the strongest long-term equity read-through in pure plays and royalties, while product quality, cost position, capex needs, diversification and realization discounts determine the net effect for each company.

Risks

• Simandou’s ramp-up is expected to create larger near-term surpluses and keep UBS cautious through CY26-CY28.
• A faster-than-expected steel decarbonisation transition could reduce blast-furnace iron ore demand, although UBS considers scrap availability and economics important constraints.
• Uncommitted supply projects could be executed and funded more successfully than UBS assumes, increasing supply growth.
• Commodity prices, currencies, political conditions, financing and mining operations can differ materially from the report’s assumptions.
• Low-grade discounts, softer realizations, higher costs, capital intensity and higher discount rates can offset gains from a higher long-term iron ore price for covered equities.

What to watch

• The pace of Simandou’s ramp-up and the size of seaborne market surpluses through CY26-CY28.
• Fe-grade trends, mine depletion and whether uncommitted replacement projects receive final investment decisions.
• Chinese manufacturing, direct and indirect steel exports, blast-furnace utilisation and scrap substitution.
• Steel-demand growth across India, Southeast Asia, the Middle East and other Global South markets.
• Iron ore cost inflation, labour availability, capex intensity and movement in the 90th-95th percentile cost curve.
• The tightening of China’s ETS from 2027, green procurement, hydrogen economics and the pace of EAF and DRI adoption.