World's Biggest Iron Ore Buyers and Why Vale is Targeting Them
Referencing back 10 years in the mining market, this current fiscal period marks the first time that iron ore supply is now greater than the demand. More than that, the industry is actually faced with the potential of an oversupply in the iron ore market. These factors combine to continue driving selling prices downward. This negative trend is compounded for mining giant Vale SA due to the demand for iron ore rebounding at a slower rate than originally forecasted.
As the largest iron-ore producer, Vale SA is likely feeling this negative impact more than any other mining corporation. The projected metric tonnage of additional iron ore likely to hit the global market this year is approximately 150 million. And there is still more iron ore production projected to be on its way in subsequent years.
Vale SA posted a sharper decline in first-quarter profit than what analysts originally projected, selling their iron ore 25 percent cheaper than a market reference price, subsequently leading to a drop in shares.
“Vale's iron ore selling prices during the quarter were materially below our and consensus estimates. As iron-ore prices continue their decline, we expect Vale's earnings and share price to come under further pressure in the coming quarters," says Andreas Bokkenheuser, an equity analyst at UBS AG.
China: Vale’s Biggest Buyer
Much of Vale’s current woes are traced back to slowing economic growth in China. There is a significant amount of concern surrounding the declining prices of iron ore as it hinges on the health of Vale’s economic success in China. A drop of 21 percent this year to $US105.4 per metric ton has been reported for ore with 62 percent iron content delivered to the Chinese port of Tianjin.
Despite the slump in Chinese economic growth that occurred in the first quarter of this year, Vale maintains a positive outlook: "Demand is expected to absorb the incremental seaborne iron ore supply for the coming years with some partial dislocation of marginal iron-ore producers from the cost curve. We expect that the price in the second half would be better than the first half. Nothing is for sure but the price will not fall below $US110 on a sustainable basis."
Whether Vale’s Executive Director for Ferrous and Strategy Jose Carlos Martins ends up being correct in regards to this being a temporary issue largely depends on China’s policies which currently limit monetary expansion.
British Lithium Pressured Due To Calls for Electric Cars
The British demand for lithium is set to reach 75,000 tonnes by 2035 as the government works towards their ban on the sale of high-polluting diesel and petrol vehicles within the UK. This comes as automakers worldwide continue to insist on the benefits electric vehicles will have on slowing the rate of climate change.
It is estimated that the UK will require 50,000-60,000 MT of lithium carbonate a year by 2035 for battery production to satisfy government needs. This is assuming production remains at 1.2 million vehicles per year, and the amount of lithium required does not increase.
British Lithium, which hopes to begin constructing a quarry to produce 20,000 MT of lithium carbonate a year in a $400 million investment, are not without competitors, both within the UK and abroad.
Competition For Lithium Rises In Europe
After only five years after its initial launch, Cornish Lithium is setting its sights on becoming a UK powerhouse in mining lithium, aiming to begin commercial production in under four years. Jeremy Wrathall, a former investment banker and current managing director of Cornish Lithium, had the future in mind when founding the company.
“In 2016, I started to think about the electric vehicle revolution and what that would mean for metal demand, and I started to think about lithium,” he said in an interview with AFP. “A friend of mine mentioned lithium being identified in Cornwall, and I just wondered if that was a sort of unrecognised thing in the UK.”
Lithium was first discovered in Cornwall around 1864 and has not been mined again since 1914 when it was produced as an ingredient in fireworks. Now, however, Cornish Lithium is reportedly in the testing stage to see if the metal can be produced commercially to meet the growing demand required for the electric car sector.
Despite Cornwall’s close historic ties to mining lithium, Wrathall insists that the project is purely commercial.
Cornish Mining Revival For Lithium Production
“It’s not a mission that drives me to the point of being emotional or romantic,” he says. “It’s vitally important that we do get this technology otherwise Europe has got no lithium supply.”
The European Commission has also stated their goal to end the sale of new petrol and diesel cars by 2035 to aid the environment. That being said, the majority of lithium extraction currently relies on power provided by environmentally damaging fossil fuels─a slight contradiction.
Alex Keynes, from the Brussels-based lobby group Transport & Environment, is adamant that mining for lithium should be done sustainably.
“Our view is that medium-to-long term, the majority of materials including lithium should come from efficient and clean recycling.
“Europe from a strategic point of view should be looking at securing its own supply of lithium.”
Despite growing competition from abroad, British Lithium Chairman, Roderick Smith, continues to place importance on the mining of lithium within the UK.
“Imagine what the UK economy would look like if we lost our automotive industry,” Smith says. “The stakes are high for the UK.”
Smith expects the UK to compete with other European countries to secure a lithium battery plant in the near future.