Iron ore prices to decline to USD 51 FOB in 2020 – Australia’s DIIS

08-Oct-2018

Australian Department of Industry Innovation and Science in latest Quarterly Report said that the iron ore price is forecast to decline to US$51 a tonne (FOB Australia) in 2020, as a result of a forecast decline in steel production in China and a well-supplied seaborne market. It said “The FOB (free on board) Australia iron ore price (62% Fe), the price at which most Australian iron ore is sold, decreased by 13 per cent year-on-year in the September quarter 2018, to average US$56 a tonne. Lower grade ores lagged behind high grade ore (65% Fe CFR), which increased by 11 per cent over the same period, in line with higher steel prices.”

World exports are forecast to rise by 1.3 per cent annually to 1,621 million tonnes in 2020, as new mines and expansions ramp up in Australia and Brazil. Emerging markets are expected to increasingly drive import demand for iron ore, while demand from China is set to decline, driven by lower steel production

China’s iron ore imports were subdued over the eight months to August, declining by 0.6 per cent year-on-year. The lacklustre demand for iron ore imports is at odds with strong growth in steel production over the same period. Weaker-than-expected import demand was driven by a rundown in inventories as well as greater use of scrap, pellets and high grade iron ores, which displaced lower grade ores in steel making. The sharp decline in the Renminbi over the past four months makes new imports relatively more expensive than the (mainly low grade) inventories of ore that have been building in Chinese ports over the past year. As a result, imports may slow until these inventories have been drawn down. China’s iron ore imports are forecast to gradually decline at an average annual rate of 1.7 per cent over the outlook period, to 1.02 billion tonnes in 2020.

Growth elsewhere unlikely to offset lower Chinese demand Import demand from emerging economies (excluding China) is forecast to grow over the outlook to 2020, partially offsetting the expected decline from China. India’s iron ore production is forecast to reach 197 million tonnes in 2020, underpinned by rapidly growing demand from its domestic steel industry. However, Indian consumption of iron ore is expected to exceed domestic production marginally in 2019, and by over 5 million tonnes in 2020, making India a net importer of iron ore.

World export volumes forecast to rise, primarily from Brazil The seaborne iron ore market is forecast to be well-supplied in the short term, with world iron ore exports forecast to grow by 3.2 per cent and 1.1 per cent year-on-year in 2018 and 2019, respectively.

Exports from Brazil are forecast to grow by 4.1 per cent and 7.8 per cent over the same period, reaching 430 million tonnes by 2019. The rise in Brazilian output comes as Vale’s S11D project at the Carajas complex ramps up production. Anglo American’s Minas-Rio expansion is also expected to reach full capacity of 26.5 million tonnes by 2020.

Seaborne iron ore trade is forecast to taper in 2020, declining by 0.3 per cent year-on-year, driven by higher domestic consumption in emerging markets displacing some exports (mainly from India). The world’s two largest exporters (Australia and Brazil) are expected to increase market share, with iron ore exports to reach 881 and 437 million tonnes in 2020, respectively, as both major producers reach record production targets.

Australian export volumes are expected to increase by 2.3 per cent to 869 million tonnes in 2018-19, and by a further 1.0 per cent to 878 million tonnes in 2019-20, as expansions and additions are completed. Higher volumes should be supported by productivity improvements, and by replacement mines at Rio Tinto’s and BHP’s operations, as both companies attempt to reach their long-term production targets. BHP is expected to expand capacity at its Port Hedland operations, with output forecast to reach 290 million tonnes by mid-2019. The company has also committed US$2.9 billion in capital expenditure for the South Flank iron ore project in Western Australia. South Flank is expected to produce 80 million tonnes annually from 2020 onwards, replacing the existing production of Yandi as it ramps down by 2022. Fortescue Metal Group’s Eliwana mine in the Pilbara region of Western Australia, is expected to produce 30 million tonnes annually commencing in 2020.

Source: STRATEGIC RESEARCH INSTITUTE, STEELGURU