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In the middle of January, the prices for many raw materials for metallurgical industry in the world market went down at the same time. First of all, the decline was recorded in the iron ore and coking coal markets but also scrap metal began to decrease in Turkey, India and some European countries. Its further growth under the February contracts already causes reasonable doubts. In this connection, we are left with a question: is the decrease in the main types of raw materials value a harbinger of a recession in the world steel market? Or do the current negative trends have a short-term character and will not have a significant impact on the overall situation?

As the Indian analytical group Technavio reports, the world market of iron ore will grow by 3% on average and reach 2.27 billion tons by 2019. The world iron ore market will expand at a solid pace over the forecast period because iron ore is utilized in the production of steel. Roughly 98% of iron ore is used in the metallurgical process. Thus, the market will be pushed by demand from such sectors as construction, infrastructure, transportation and related industries.

The main regions-producers of iron ore are Australia and Brazil. Brazil has five biggest iron ore mines, Australia - five and Africa - one. The Australian iron ore industry is export-oriented and exports about 80% to 90% of its products. The three world leaders in ore extraction - Rio Tinto, Vale, BHP Billiton - are responsible for dependence of the iron ore market on the Chinese economy today. Transition of these companies to short contracts with prices as close as possible to spot prices determined such dependence. Now the prices on the iron ore chart reflect the current economic state of China.

According to analysts at Goldman Sachs Group Inc., iron ore prices will fall to $50 again this year amid rising global supply; the amount of supply are also supported at the expense of a new mine in Brazil. Meanwhile, in China, steel production may be depleting the growth potential, the bank's experts add. According to forecasts of Goldman Sachs, the prices for iron ore may fall to $60 in 3 months, fall $55 in the 6-month term and reach $50 in a year. Thus, analysts of the New York Bank have been predicting the second straight year of decline for iron ore. In the accompanying comments to the forecast Goldman experts explained that the main reason for their bearish sentiment are such factors as expectations that the steel production in China will reach peak values and then it will start to decline; and further growth in supply, in particular in connection with the commissioning of the S11D mine. This new mine was discovered by the Brazilian mining giant Vale SA at the country's largest field.

As can be seen on the iron ore chart, this year turned out to be very volatile for the iron ore market - prices were pretty much tossed up and down at a time of political news from China, where the authorities decided to reduce steel supplies as part of the fight against pollution. This environmental cleanup led to a rise in steel prices and, consequently, the profits of steel producers, which in turn raised hopes that it would help iron ore producers raise selling prices for their goods.

However, the Goldman does not consider this argument convincing believing that the prices for iron ore should be determined by the intrinsic dynamics of the supply-demand relationship and not by how much the buyer is potentially able to pay. In fact, they emphasize, the producers' profits are holding high because of the government's policy of reducing production, which negatively affects the demand for ore.