BHP expects to reduce iron ore unit costs at its Western Australia operations by 21 per cent to US$16 per tonne in the 2016 financial year.

Seaborne iron ore prices have gained ground of late, with the Platts 62% Fe Iron Ore Index, or IODEX, lifting $1.90/dmt, or 3%, from the start of August. “Iron ore prices are now expected to be essentially flat for the next two years”. The commodity’s price has almost halved since January.

“The restocking rally is petering out amid weak demand fundamentals”.

While China’s steel demand “should recover somewhat as the current cyclical dent is overcome, structurally, China appears to be very close to peak steel consumption”, said Julius Baer analyst Carsten Menke, who sees iron ore averaging $50 this year and $45 in 2016. While ANZ had forecast steel consumption in the country would peak in 2020, that’s been brought forward to 2014, according to the report.

Steel demand in China typically picks up from September along with construction work after the summer lull.

Much rests on the sustainability of China’s record economic growth rate, which has flagged this year.

China accounts for about half of global steel production, and slower economic growth and a shift by policy makers toward consumption-led expansion dragged iron ore prices to the lowest level in at least six years in July.

“Vale is progressing to reach the lowest cash cost of the industry and will be competitive at any price scenario”, Claudio Alves, a global director of marketing and sales at Vale, told a conference in Qingdao.

“The outlook for steel prices from here has become clouded by the various easing measures announced by China – while these have seemingly not helped overall growth, there is evidence of stabilisation in property and infrastructure sectors that are the predominant users of steel”.