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Much of the discussion about iron ore focuses on the outlook for demand in China. Still, two factors that are likely to cause a structural shift in the market for the steel raw material – a lack of new supply and decarbonisation are bubbling in the background. What happens in China is the primary driver of short- and medium-term iron ore prices, unsurprising. It purchases nearly two-thirds of all seaborne volumes and produces roughly half of the world's steel.

The state of supply gets less attention, possibly because it has been relatively stable in recent years and only becomes a market issue when there is a significant disruption, such as cyclones in top producer Australia or coronavirus-related production and transportation difficulties in number two shipper Brazil.

However, digging a little deeper revealed that, at best, iron ore supply is likely to remain stable in the coming years, with significant miners only investing enough to replace depleting mines and secondary manufacturers not intending to put in much more than comparatively small-scale quantities.

Steel consumption has grown at roughly the same rate as the global economy and assuming a compound annual growth rate of 2.5 percent, and it will have more than doubled by 2050. Other factors may influence the amount of iron ore required. This type of long-term forecast is always subject to caveats.

These include the possibility that China will reach peak steel demand this decade and the growing use of scrap in China and elsewhere in Asia. In other industrialised countries, peak steel was followed by a gradual decline in demand rather than a sharp drop.

Another factor is that about two billion people live in Asian countries, far behind China in terms of industrialisation. These are likely to want to increase steel demand in the coming decades.

One of the topics discussed at this week's Global Iron Ore and Steel Forecast Conference in Perth was the lack of additional iron ore capacity investment. According to Paul McTaggart, lead metal and mining analyst at Citi, the iron ore industry requires 100 million tonnes of new capacity per year to replace depleting mines.

While Australia's major miners, such as Rio Tinto, BHP, and Fortescue Metals, all have large investment plans and are developing new mines, their capacity will remain relatively stable in the coming years.

It is possible that these iron ore titans are responding to shareholder demands for higher dividends from current high prices or that they are still hurting from the period from around 2011 to 2017 when there was an excess of capacity and the spot price of iron ore traded at low levels for a more extended period.

They may also be skeptical about how much steel will be required to build out renewable energy solutions as part of the global effort to decarbonise the economy. Whatever the reason, it appears that there may not be enough iron ore to meet rising demand in developing Asian countries and steel-intensive renewable technologies like wind turbines and electricity grids to handle intermittent renewable generation.

For iron ore producers, the impact of decarbonisation adds to the uncertainty. The current process of converting ore into crude steel requires a lot of energy and is primarily powered by coking coal. Higher grade iron ore is one way to reduce the amount of coal needed per tonne of crude steel, and this is likely to drive a two-speed iron ore market, where high-grade material commands a growing premium over lower-quality ore.

This would not eliminate carbon emissions from steel production but significantly reduce them. Once again, this method favours higher-grade iron ore, which means miners may need to invest in facilities to beneficiate lower grades to make them more suitable for a carbon-constrained world. The problem is that investments in additional iron ore capacity and upgrading have extended lead times, and even if made today, the products may not reach the market on time.