Metals and mining research and consultancy group Wood Mackenzie has identified five trends that will impact the iron ore industry.
Slower demand growth, especially in China, and a
decent recovery in seaborne supply will continue to feature prominently in the
iron ore industry in 2020, Wood Mac said in a research note. Prices are
predicted to fall, with annual average price forecast for 2020 at $80/ tonne.
Vale – starting to give back some of what it took
away in 2019
In 2020, Vale could once again be the biggest
swing factor for iron ore, but this time in the opposite direction.
“Wood Mackenzie forecasts an accelerated recovery in
shipments from Q1-20, resulting in a 30 million tonnes (Mt) rise in seaborne exports
from Vale in CY 2020. In other words, half of last year’s losses will be
recovered in just one year,” Research director Paul Gray said in a media
Looking further ahead, Vale’s previous peak production (385 Mt in 2018) could be achieved as soon as 2021, pending extreme weather conditions and consequential supply chain disruptions. This is to the credit of the rapid repair and recovery program underway at the company’s key hubs in Minas Gerais.
Chinese iron ore production – how sustainable as
Chinese iron ore production increased by
approximately 30 Mt in 2019 in response to strong domestic demand and tight
seaborne supply. In 2020, Wood Mackenzie forecasts a decent recovery in
Chinese concentrate production will remain
broadly stable in 2020 with no significant displacement occurring until 2021,
Wood Mackenzie predicts.
“There is more upside than downside risk to our
Chinese iron ore production forecast for 2020. In H2-19 we saw how resilient
Chinese domestic production (and price) has become due to falling seaborne
prices. This trend will likely persist through 2020 as further productivity and
efficiency gains are realized,” Senior manager Ming He said.
“The trend towards higher pellet rates in the
blast furnace burden and installation of more efficient pelletising capacity
within China should also support demand for domestic concentrate used as pellet
feed,” He added.
The downside risk to production from increasingly
stringent safety and environmental protection policies has also diminished now
that mine operators have upgraded equipment and improved the technical
efficiency of beneficiation.
An Indian supply-side surprise?
Indian imports could rise to 12 Mt in 2020. To
reduce reliance on expensive imports, either exports need to fall by a further
10 Mt or domestic production needs to rise by the equivalent tonnage.
key point to watch in 2020 is India’s ability and willingness to boost domestic
production in response to stronger demand and wide spreads between domestic and
seaborne pricing. Look out for higher supply from NMDC (additional 3 Mt
capacity at Kumaraswamy mines), an additional 3-4 Mt from JSW, plus SAIL’s
enhanced ability to fill any shortages now that the government-owned producer
is permitted to sell 25% of production in the open market,” Principal analyst
Sandeep Kalia said.
The mine lease auction process for 18 working
mines (with capacity to produce approximately 80 million tonnes per year
(Mtpy)) is scheduled for completion by end-February. The results of which will
provide a good indication of potential production shortfalls.
Premiums and penalties – where next?
The past two years have been a roller-coaster
ride for iron ore grade price spreads and impurity penalties – notably silica
and alumina differentials.
2020 we forecast a modest recovery in the 65/62 spread (spread between the 65% Fe index and the 62% Fe index),
from an annual average of 12% in 2019 to 14% in 2020. However, with steel
prices likely to remain under pressure and iron ore prices currently trading
above our forecast, there is risk of further steel margin compression, limiting
the scope for higher premiums for high grade ore,” Gray said.
“We are also firm believers in the long run trend
towards steel mills consuming more high-grade ore at the expense of low-grade
ore, but this can come at a cost of rising alumina in blast furnace slag – too
much alumina increases slag viscosity, significantly reducing blast furnace
permeability which negatively impacts fuel rate and overall
productivity. Watch out for rising alumina penalties and falling silica
penalties,” Gray added.
Will Simandou take off?
Simandou’s new owners, the Chinese-backed
consortium SMB-Winning, announced last year that the mine has capacity to
produce over 100 Mtpy of high-grade iron ore, and is expected to commence
production in 2025.
project of this scale in this location (Guinea) will almost certainly take more
than five years to reach fruition. But more importantly, we think
the market will struggle to absorb the additional supply, and it will be a
challenge to earn sufficient return on investment,” Gray said.
“However, key consortium partner China Hongqiao (Weiqiao) Group has significant influence and investments in Guinea. Ultimately, this could come down to a strategic desire for China to reduce reliance on imported iron ore from Australia and Brazil while increasing captive ownership of iron ore resources in a country where China already has considerable influence,” Gray added.
Written by Amanda Stutt.
View the original article at here.