Nobody likes to hear bad news in December. But I'd rather hear about a rainstorm ahead of time rather than be caught short without an umbrella! With that in mind, keep an eye on our big miners heading into 2026. Especially the ones that deal in iron ore exports to China. That's the warning from Westpac, as it highlights that the iron ore market "has all the settings for a correction" as we move into 2026.

Westpac notes in its December commodities update that iron ore in particular defied analyst expectations in 2025. However, the music may still be about to slow down for exporters of the once-essential mineral. Westpac notes that iron ore prices defied expectations of a downturn in 2025, but added that the downturn wasn't avoided. Merely delayed. The bank now says the iron ore market is headed for a sizeable correction, which is set to have implications on local mining stocks.

Iron ore finished 2025 around US$105 a tonne, rising modestly in a year when most forecasts pointed to a decline. That resilience helped cushion miners from sharp falls in LNG, oil and thermal coal prices. Westpac’s December 2025 outlook argues that strength is unlikely to persist. Its economists forecast iron ore prices to fall about 20 per cent to roughly US$83 a tonne by the end of 2026.

The call rests squarely on demand trends in China. Westpac notes that Chinese steel production peaked in 2020 and has been trending lower since. Over the past year, output of both pig iron and crude steel has fallen sharply, while global steel utilisation rates have dropped. Despite this, Chinese iron ore imports have remained broadly flat, and domestic ore production has declined, contributing to rising port inventories relative to steel output.

Westpac also points to deteriorating economics for Chinese steelmakers. The cost of key inputs, including Australian iron ore and metallurgical coal, has continued to rise, while Chinese steel prices have fallen. This has created the widest gap between input costs and steel prices since mid-2024. In that earlier period, the imbalance was resolved through a sharp fall in iron ore and coal prices, a precedent Westpac says increases confidence in its current forecast.

For Australia, the significance lies in iron ore’s outsized role in export earnings. A price correction of the scale Westpac expects would flow directly into lower realised prices for miners whose primary product is iron ore. The bank does not argue that demand is collapsing, but rather that supply, inventories and margins are misaligned after a year of unexpected price strength.

Westpac’s broader commodities outlook provides some context. While it expects its overall commodities index to ease only modestly by the end of 2026, iron ore is forecast to be the largest drag. Strength in gold and support for base metals such as copper and aluminium are expected to offset some of the weakness elsewhere.