Metals
and mining research and consultancy group Wood Mackenzie has identified
five trends that will impact the iron ore industry in 2020.
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 Mackenzie 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 the media
release.
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 prices fall?
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 seaborne supply.
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.
“A
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.
“In
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.
“A
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.
Source: Mining |