Iron ore rebound returns hope to the industry
The commodity rebounded after a 10 per cent drop just one day earlier, making it the largest single-day fall and rise ever in a 48-hour period. BHP Billiton went up nearly three percent, while Rio Tinto saw a 2.32 percent increase and Fortescue Metals rose 1.68 percent.
This latest development will have a big impact on revenue for both Australia and China, as Australia is the world’s largest supplier of iron ore—which is key to making steel—while China is the Aussie’s top customer.
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Increased supply in recent months along with a decrease in Chinese demand has had iron ore on a steady decline. Even with the latest 10 percent spike, the majority of smaller Aussie miners will still be producing at a loss, forcing many cut costs.
Meanwhile, Rio Tinto believes the long-term market for iron ore is stable and will continue to produce a good amount of revenue in Australia. After providing its second-quarter operations review, Rio noted iron ore production and shipment increased compared to 2014 despite unseasonal, severe weather in Western Australia that included two tropical cyclones that lost about seven million tonnes.
In addition, Rio had record first-half production and sales of 146.3 million tonnes and 146.5 million tonnes respectively from its Pilbara site. The company also expects to increase its production capacity to 340 million tonnes, which would be up 15 percent from 2014, as the company completes key parts of its infrastructure that will support expansion.
“The focus is now to ramp up the new equipment to full capacity and generate maximum value from the integrated system,” said Rio in a statement.
This has led Rio to persuade investors that being the producer with the lowest cost will pay off down the line as higher-cost producers continue to leave the market. The company’s share price goes in line with the spot price of iron ore in Asia, which isn’t a surprise since the commodity makes up about 90 percent of the company’s revenue.
As it is, iron ore producers will continue to be in competition in a shrinking market.
Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”