China continues to prove the market commentators wrong on the iron ore front, with the asian heavyweight’s imports still hitting record levels.
In the past three months China’s iron ore imports have climbed 20 per cent year on year, while year-to-date they are up 11 per cent compared to the previous year.
August imports were the third highest on record.
Guy Le Page, director and responsible executive at Perth-based financial services provider RM Corporate Finance, told Stockhead in May that “a lot of analysts are not bullish on iron ore” and that they’d “underestimated the recovery in China”.
And it was only in late August that Le Page pointed out market forecasters had started playing catch-up.
Mark Eames, non-executive director of emerging South Australian iron ore producer Magnetite Mines (ASX:MGT), agrees, saying market observers had missed the mark on both the demand and supply front.
“We’ve been talking about the same theme for the last 18 months, which is that observers have tended to be quite pessimistic about China’s prospects in iron ore,” he told Stockhead.
“A lot of people were forecasting that iron ore prices were going to fall from where they were 18 months ago, and in fact they’ve almost doubled.”
Eames said demand had risen from around 800 million tonnes up until mid-2017 to about 900 million tonnes in 2018 before hitting close to a billion tonnes last year.
“If you translate that, that extra 200 million tonnes of steel production requires effectively another 300 million tonnes of iron ore,” he said.
“So it was pretty clear from the steel production trend that there was going to be a major increase in iron ore demand.
“In fact, for July and August the imports have been running at an annualised rate of about 1.3 billion tonnes.”
This continued increase in demand is occurring amid declining shipments from major iron ore producer Brazil, which has been hard hit by the COVID-19 pandemic, as well as reduced production from the Australian majors.
UBS’ tracking of iron ore shipments from key producers in Australia, Brazil and South Africa showed that over the week to September 6, total shipments had fallen 7 per cent week on week to 24.5 million tonnes.
The slide was due to a sharp 16 per cent week-on-week fall in shipments out of Brazil, and Australian shipments remaining broadly flat.
Iron ore shipments
And over the last month a number of Chinese steel producers have restarted blast furnaces (BFs) that were “hot-idled” (temporarily halted when steel demand contracted) due to COVID-19.
“We expect producers to announce further restarts of BFs over the next few months due to operating issues caused by extended outages,” UBS said.
“We estimate in total ~22 BFs are being restarted around the world or ~30 per cent of the total idled. In our opinion, this is not a surprise given the time-constraints of hot idling and as demand is picking up.”
Le Page expects iron ore prices to remain above $US100 ($139) a tonne for “some time to come”.
Iron ore is priced on three grades: 58 per cent (low grade), 62 per cent (benchmark) and 65 per cent (premium grade). The higher the grade the more it sells for.
According to S&P Global Platts, the August average for 62 per cent and 58 per cent iron ore was $US122.53 and $US103.07 respectively. That’s a 46 per cent and 64 per cent increase, respectively, over the average prices in April this year.
Iron ore prices
Average monthly prices of 62 per cent and 58 per cent iron. Source: S&P Global Platts.
“Most observers were saying that China steel production would collapse … it’s actually gone up dramatically,” Magnetite Mines’ Eames said.
“It’s gone up by 26 per cent year to date on five years ago, and then when we look at iron ore supply from Fortescue, Rio and BHP, their iron ore production on the numbers for 2015, so five years ago, is up only 4.6 per cent.
“So essentially when you take into account grade changes and everything else, production of iron units is essentially where it was five years ago from those three players.”
High-grade players few and far between
There are very few juniors that can produce high-grade direct shipping ore (DSO), but there are a handful getting much closer to production.
DSO refers to minerals that require only minimal processing such as crushing before they are exported, which keeps costs low…..
“We expect iron ore prices to remain high for quite some time, due to expected increasing Chinese demand (driven by government stimulus) and likely continued supply constraints from Brazil,” managing director William Johnson told Stockhead.
Magnetite building market share
While high-grade iron ore is still very much in hot demand, the declining tonnes coming out of Australia’s iron ore rich Pilbara and from Brazil is seeing Chinese steelmakers increasingly blend low and high-grade ores or pivoting to processed ores like magnetite….
Full article here