Investing.com -- Iron ore prices remained stable in the first quarter of 2025, averaging around $104 per ton, largely due to supply disruptions while demand persists.

The commodity has seen prices fluctuate between $90 and $120 per ton over the past 12 months, hitting a peak in May 2024 and a low in September 2024 due to macroeconomic concerns.

The global steel and iron ore markets are expected to experience a mild surplus in 2025, similar to 2024. However, UBS analysts forecast a more significant surplus in 2026 and 2027, particularly with the expected ramp-up of the Simandou project.

“As a result, we still expect iron ore prices to trend down medium-term,” analysts led by Myles Allsop said in a note.

In terms of fundamentals, UBS projects a moderate surplus in 2025, with a demand reduction of 20 million tons (Mt) and a supply increase of the same magnitude.

A more substantial surplus is projected for 2026 and 2027 as supply could grow by approximately 60Mt annually.

Demand is expected to decline slightly each year from 2025 to 2027, with robust steel production growth in India and Southeast Asia partially offsetting a downturn in China.

Meanwhile, the analysts have trimmed their supply forecasts for 2025 due to weather-related and project disruptions, with only a modest increase of 20Mt tons anticipated. However, supply growth is expected to accelerate in 2026/27 due to new projects in Australia, West Africa, and Brazil.

Looking ahead, UBS forecasts that iron ore prices will average around $100 per ton in 2025, with a slight decrease to $95 per ton in 2026 and $90 per ton in 2027.

These figures are in line with the current spot price of $102 per ton. The firm also identifies $85 per ton as a robust support level for iron ore prices over the next three years, based on the 90th percentile of the iron ore value-in-use cost curve.

Regarding stocks that are exposed to the iron market, UBS favors Rio Tinto (NYSE: RIO ) over BHP Group Ltd (ASX: BHP ) due to expected near-term volume growth.

Vale SA ADR (NYSE: VALE ) is preferred over Fortescue Metals Group Ltd (ASX: FMG ) because of anticipated improvements in operational performance. The bank also remains cautious on Kumba (JO: KIOJ ) due to its valuation.