Brazil, India to defy global slowdown of iron-ore production up to 2027

27-Nov-2018

The global iron-ore market will stay well supplied up to 2027, supported by expanding output in Brazil and India, says Fitch Solutions’ Macro Research unit.

Global iron-ore production will grow modestly from 3.36-billion tonnes to 3.41-billion tonnes by 2027, representing a yearly growth rate of 0.5%, which is a significant slowdown compared with the 5% a year growth that was recorded between 2008 and 2017.

Fitch reported that, on the one hand, supply growth will be primarily driven by India and Brazil, where major miner Vale is set to expand output with its new mine. On the other hand, miners in China that operate at the higher end of the iron-ore cost curve, will be forced to cut output, owing to lower ore grades.

Brazil’s ore grade averages 65% while China’s ore grades hover around 21.5%.

Fitch forecasts India’s iron-ore output to grow from 209-million tonnes this year to 221-million tonnes in 2027.

It further expects Brazil’s iron-ore output to grow from 453-million tonnes this year to 582-million tonnes by 2027. Brazil will remain the top global iron-ore exporter for the period.

Fitch forecasts China’s iron-ore production to decline from 1.29-billion tonnes this year to 1.24-billion tonnes by 2027.

“While we expect the overall volume growth of China’s iron-ore imports to decelerate, the country’s tightening environmental standards will keep demand

for high-grade iron-ore relatively strong, putting a premium on prices.

“For instance, the spread between China’s iron-ore import prices of 66% and 58% iron content increased from $30.40/t in the beginning of 2017 to $47.30/t as of January 2018,” said Fitch.

In September 2017, Chinese officials announced that they will cancel about a third of the country’s iron-ore mining licences, mostly belonging to small polluting mines, as part of Beijing ‘s efforts to improve air quality, which ultimately affects about 1 000 mines.

Meanwhile, Fitch anticipates iron-ore production in Australia to decrease from 906-million tonnes this year to 841-million tonnes by 2027. Australia’s share of global output will average 25.67% in the period.

The iron-ore production decline in Australia is owing to the mothballing of mines owned by junior miners as iron-ore prices remain weak, while major miners will stick to their production growth targets to crowd out high cost producers.

“Declining production costs will keep major miners’ strategy of increasing output to reap economies of scale economically sustainable. For instance, Rio Tinto and BHP Billiton now respectively boast cash costs of $14.30/t and $15/t of iron-ore, respectively, owing to intensive cost-cutting efforts,” explained Fitch.

Owing to a decrease in steel production, China will lead a global slowdown of iron-ore demand over the long term, although the short-term demand will be buoyed by renewed government support to the economy on the back of rising headwinds from trade-war rhetoric with the US.

Fitch anticipates China’s imports will slow, with the country’s economic growth focus shifting away from heavy industry and towards services. Chinese domestic demand for steel will slow from 2020 onwards, as construction and infrastructure projects start to thin, with the easing of government fiscal support.

Although steel production in China averaged a year-on-year growth of 6.3% over the first half of this year, net steel exports declined by 15% year-on-year in the same period, compared with 28.2% in the first half of 2017. Iron-ore imports grew by 0% year-on-year in the first half of this year, compared with 9.4% in the first half of 2017.

Fitch predicts India will be the bright spot of global iron-ore demand growth, as demand for steel from the construction, automotive and infrastructure industries continues to rise.

Source: CREAMER MEDIA ONLINE