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Iron ore prices are down but is demand recovery around the corner
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Iron ore prices are down but is demand recovery around the corner
Iron ore prices have slumped on concerns over the effect of the Coronavirus outbreak and the consequences for China's economy.The benchmark S&P Global Platts 62 percent iron ore price dropped about $US10 since the Chinese New Year vacation to hit US83.05 ($123.29) per dry metric tonne.
While the fall had been largely expected since trading resumed last week, it, however, raised concerns about how it would affect the Australian economy, especially Western Australia's, which might receive a big hit to its iron ore earnings.
Head of insight & metals news, Asia-Pacific for S&P Global Platts, Paul Bartholomew told Stockhead that the price drop was because of a combination of the lack of trading activity and the negative view around the coronavirus.
He noted that while logistics issues had been worth watching, they seemed to have improved this week. "Some of the truck transport is pretty sparse at the moment because either the motorists are still on holiday or quarantined," he said.
"There were also bans on collecting cargoes and supplies from the ports, though we know some of that has been loosened now." China had imposed restrictions on the movement of people and goods in the wake of the Coronavirus outbreak and had also extended the holiday period until February 10. Measures adopted to contain the virus spread could also slow down the loading and discharge rate of raw materials. "We are not expecting demand pickup until probably end of March, as it typically requires some weeks after the New Year to return to normal operating rates, and obviously with the happenings going around the Coronavirus, that is going to push it back possibly a month," Bartholomew explained.
DEMAND RECOVERY Although, it isn't all doom and gloom.
The timing of the Coronavirus outbreak occurring during the Chinese New Year may work out better than if it had occurred at any other time of the year. "I think the major thing is that this is happening during a seasonally slow time of the year," Bartholomew clarified.
"He further explained that some of the disadvantages are going to be absorbed by the fact that February is always a quiet month." He added that if things didn't worsen, activities could begin picking up from the end of February to March. "When the recovery happens, it will be quite swift, and there will be a big pickup," he said. "There will be a lot of pent-up demand, and then you will see mills flying into restocking and actions. "We hope to see the Chinese authorities put a bit of stimulus into the economy, a lot of that will find its way into infrastructure and property construction and other types of fixed asset investment." China may ramp up its stimulation programs to counter the effect of the coronavirus and possibly meet any targets for the final year of its 13th five-year plan.
"It takes some time to generate demand with these projects. It does not happen overnight; there's always going to be a lag time," Bartholomew added. Over the past month, the iron ore players at the junior end of the market have not fared so well, as their share prices dropped between 4 percent and 25 percent of their value.
The most recent iron ore entrant to the ASX, Macarthur Minerals (ASX: MIO), was down 4 percent. The company is exploring for iron ore at its Lake Giles project near Kalgoorlie in Western Australia. Legacy Iron Ore witnessed the most significant fall, which operates the Mt Bevan iron ore joint venture in the Yilgarn area of WA.
Iron ore futures in Singapore and China fell on Friday on fears over a potentially deeper international economic downturn due to the coronavirus outbreak. Still, expectations of more policy support for businesses drove prices higher weekly. to look like a global pandemic." The World Health Organization hasn't recognized it as such; however, the spread of infection, which is already disrupting global business, has accelerated in different parts of the world, such as in Europe and North America. Iron ore retreats on coronavirus fears, but set for weekly rise
Iron ore on the Dalian Commodity Exchange closed 2.2% lower at 650 yuan ($93.58) a tonne but jumped 5.4% from last week. Futures on the Singapore Exchange also dropped 1.1% in early trade. Other Chinese Iron derivatives also came under selling Pressure but posted weekly earnings. Singapore minister Lawrence Wong, who co-heads the nation's virus-fighting taskforce, said the coronavirus spreading around the world from China is "starting "Markets are likely to remain volatile as they regularly re-assess the probable economic impacts largely based on headlines," explained Tapas Strickland, director of economics at National Australia Bank. The magnitude of the economic downturn will depend on how the outbreak evolves, which remains highly doubtful, the Asian Development Bank said, projecting a global impact of around $347 billion, or 0.4% of global gross domestic product. FUNDAMENTALS
• Benchmark 62% iron ore's spot price rose for a fourth straight day to $91.50 a tonne on Thursday, the highest since Feb. 24, SteelHome consultancy data revealed. • Several mills in China's top steel-producing city of Tangshan plan to halt several mines facilities this month in compliance with anti-pollution production restrictions, industry data provider Mysteel said. • Chinese warehouses storing steel products are reaching full capacity as the country's inventory of the manufacturing and construction material has increased to a record-high volume because of the coronavirus outbreak-related restrictions, Mysteel said. • Construction steel rebar on the Shanghai Futures Exchange was down 1.0%, while hot-rolled coil slipped 0.9% and stainless steel dropped 0.4%.
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Iron ore prices drop almost 9% in a week despite supply tightening
Latest data revealed on Monday indicates Iron ore prices have dropped 8.6% over the previous five trading sessions despite supply tightening as a result of weather events crimping exports from key exporters Brazil and Australia. S &P Global Platts evaluated the 62% Fe IODEX down $7.90/ dmt week on week at $83.90/ dmt CFR China on Friday as expectations faded for a recovery in downstream steel demand in the second quarter while the coronavirus outbreak continues to spread beyond China. Prices fell despite supply tightening because of a heavy monsoon season in Brazil since December and recent cyclones in Western Australia. Iron ore exports from Brazil averaged 5.22 million mt/week from the initial eight months of 2020, down sharply from 7.2 million mt/week a year earlier. In Australia, exports averaged 15.76 million mt/week, down from 16.37 million mt/week at the same 8-week period of 2019. Nevertheless, market participants expected the decrease in exports to have a limited effect given the weakness in steel demand and expectations that end-users in China would lower production levels or perhaps stop some capacity. For many weeks after the Lunar New Year, iron ore prices remained widely supported despite the effect of the coronavirus outbreak in China as many end-users agreed to sustain their procurement and production levels. Even smaller and more flexible end-users decreased production as steel margins turned unfavorable or corrected their sinter feed to low-cost alternatives, large
14 | SKILLINGS MINING REVIEW March 2020 end-users could not follow suit because of the more complex nature of operating large blast furnaces. As changes to their blast furnace production processes aren't easily reversible, a decision to adjust their sinter feed or reduce production rates would hinge on a longer-term result.
However, Market expectations for large end-users are to begin lowering their production rates in Q2 or to begin unscheduled maintenance periods to manage their production costs as accumulating steel inventory levels now affecting storage space.
LOW PORT STOCKS SHRUGGED OFF End-user Procurement preferences have been mainly in favor of the portside market to date in 2020, which provides more flexibility in volume than securing seaborne cargoes.
Friday from 125.5 million mt on February 7. Port Stock levels are currently not too far off the 114 million-115 million mt levels attained in June-July last year that sparked a buying frenzy for seaborne cargoes, but ultimate-consumer demand this time is weak, a global trader said.
But, despite expectations, the effects of supply would be limited to diminishing end-user demand, a specific level of inflexible demand for some products has been expected to encourage their premium levels.
Even though negative steel margins encourage end-users to adopt cheaper sinter feed penalties, end-users are only able to replace a specific proportion of the sinter feed blend. Several traders explained that weather disruptions had affected some products spot supply and
some end-users have paid high premiums to get prompt-loading cargoes out of demand.
PREMIUM HOLDS FOR KEY GRADE Market Sources expected premiums for low alumina products to be encouraged regardless of present margins as a result of the coking costs associated with allowing blast furnace feedstock alumina levels to go above standard tolerance levels and lower Brazilian export volumes.
The delayed restart of China's domestic low alumina concentrate production after extended Lunar New Year holidays has increased the effect of Brazil's iron ore exports, which are lower in alumina. Export and shipment data seen by Platts indicates discharge volumes at Teluk Rubiah from Brazil in 0.8 million mt in January and 1.2 million mt in February as of February 25. This fell sharply from 1.95 million mt in December and 2.3 million mt in January 2019.
BRBF produced in Teluk Rubiah in Malaysia, or Brazilian Blend fines are an integral part in the sinter feed mix of mills in south China and market sources anticipated premiums to be supported on account of the suppressed volumes and the mills' geographical distance from iron ore mines in China's north.
Many traders said that the other medium grade Brazilian substitutes for BRBF are much less ideal in terms of Sintering quality due to sizing differences and, as such, any available spot BRBF cargoes are very likely to remain in high demand.
We thrive on challenges
AMERICA
Paul Gazelka is the Minnesota Senate Majority Leader.
Let’s Mine The Range Let’s Do It Correctly
As Senate Majority Leader (Senator Paul Gazelka), my heart is from the Iron Range, and I stand for a caucus that expands the state, from suburban Ramsey county to rural Pipestone, from the Warroad's forests to Winona's bluffs. However, I am a graduate of Roosevelt High School in Virginia.
It was inculcated in me how important our way of life is when growing up. We work hard, manage our resources, and help each other out. I am supporting the mining projects on the Range because our way of life depends on well-paying tasks, protecting the environment, and securing a prosperous future for the next generation. And I'm just as disappointed as you are when somebody from the metro attempts to show us how to live.
Lately, a change in leadership from the Senate Democrats removed Senator Tom Bakk from leadership, a sign of the things to come from the metro-focused DFL caucus: fewer jobs, more delays, and a Range that is just a playground for tourists. That's not exactly what Minnesota needs to keep our economy strong, that's not what I want for a future on the Range. We're not going to allow the urban core to dictate how you live your lives. We have got your back at the capitol.
Urban Democrats in St. Paul fail to understand two obvious facts when they attempt to prevent Mining. First, Mining belongs on the Range. Second, Mining on the Range is Mining done right.
16 | SKILLINGS MINING REVIEW March 2020 Minnesota has been mining for four generations. We started digging iron from the earth in the 1890s to build our infrastructure across the country and to use during both world wars. While ago, we got it, cleaned it up, and got the iron on a train or ship to a factory. That is not the way we do it nowadays.
We know we can't mine in a poisonous waste pit these days. We can't use Polluted water for Mining or even leave pollutants behind. We want to make the most of the natural resources we have, and we'll do all we can to keep the soil, water, and air clean today and also for the future. The permitting process from the national and state government has been strict and intense. Polymet and Twin Metals have taken every measure to adapt and ensure that they are meeting the expectations we laid down.
However, a good thing can be taken too far. The delays, lawsuits, and legal battles have been pricey. Not just for the firm's legal fees, but for the Rangers who would benefit from the investment in our workers and our communities. The next generation is leaving the Range since the jobs their grandparents and parents had aren't there for them anymore.
It's affected the state's economy. More tax dollars being put into welfare and assistance, failed economic development grants (remember that chopstick factory?) Schools were closing and rival hockey teams combining due to lack of enrollment. We've been attempting to do something other than Mining for decades, but the Range must do what it does best: provide the natural resources for our future together with good-paying jobs by using the skills and resources that only the Range has.
Also, Minnesota is consistently ranked as a "best of" state. In 2019 alone, we were considered as the second-best for quality of life, the friendliest state according to a travel site, and the third-best state in the country overall by U.S. News & World Report, period. That's the main reason why we need Mining in Minnesota - we
can do it better than anyone else. The Guardian reports some of our popular brands – Apple, Dell, Tesla, Microsoft, and Google – have all been named in a lawsuit over the death of 14 children in the Republic of Congo. These children died while mining for copper and cobalt.
Amnesty International reports that children as young as seven years old work in mines digging for metals without any protection. Foreign Policy magazine emphasized Chinese investments to African mining companies, which have polluted the water source for villages and threaten the extinction of species.
We are concerned about the pollution and potential for disaster here; however, there is a significant difference here in Minnesota, we mandate, regulate, and investigate the best protections for people,
water, soil, and air. If we can't find a way to mine here, we will be creating the future on pollution and waste from unwary foreign leaders because we were trying to maintain the moral high ground for ourselves.
We need the nickel, copper, and other metals from the earth for our electric vehicles, cell phones, and emerging technologies. We don't need the child and forced labor, pollution, and deforesta
tion from other nations. Currently, we are considering just two copper-nickel mines- but Minnesota has the largest cobalt deposit in the United States, cobalt that's vital for lithium-ion batteries. After everything we've put Polymet and TwinMetals through for nickel and copper – if we can't do it, do you think resources in other countries, animals, and the children stand a chance? Let us mine in the Range. Let's do it correctly. For Minnesota, and also for the world.
AMERICA
Fortescue profit soar on iron ore price jump, but dividend seen conservative
Australia's Fortescue Metals Group Ltd (FMG.AX) announced a near four-fold leap in half-year gain on Wednesday as it cashed in on higher iron ore prices. At the same time, analysts said a lower-than-expected profit reflected warning on the global economy.
Fortescue is the second international iron ore giant to announce results this year, as well as the next to offer lower than anticipated payouts, which analysts said reflected a move to maintain cash in reserve given doubts over global economic expansion following the coronavirus outbreak.
BHP Group on Tuesday also reported a slightly lower profit despite a windfall from last year's boost in iron ore prices. The Net profit for the six months ended Dec. 31 was $2.45 billion, compared with $644 million a year before. The figure was higher than a UBS estimate of $2.37 billion. The Perth-based miner reported an interim dividend of A$0.76 per share, up from A$0.19 per share last year but lower than a consensus forecast of A$0.80 cents. Shares had climbed 1.3% to $A11.20 by 0236 GMT, outperforming its rivals.
"It's a solid, in-line outcome with the dividend slightly light. UBS analyst Glynn Lawcock said that the board is choosing to become conservative, given the doubts over global growth." After the disaster at a tailings dam possessed by former top iron ore producer Vale SA (VALE3.SA) in January last year, iron prices skyrocket, with Dalian Commodity Exchange's frontmonth iron ore futures contract DCIOc1 gaining 28% in 2019. Analyst Lawcock said Investors are currently waiting to see if money may be returned when the market holds up this half, a move hinted at by the company.
Chief Executive Elizabeth Gaines told reporters during a revenue call that it isn't uncommon for the Interim to be a bit lower and that we have a stronger fullyear payout ratio.
CONFIDENT' ON CHINA Fortescue's iron ore shipments and customer payments had not been affected by the coronavirus; although high steel inventories and logistics were a significant headwind for its customers, it was confident that China would meet its growth targets, Elizabeth Gaines said.
18 | SKILLINGS MINING REVIEW March 2020 "We are confident in the strength of the Chinese economy with the government maintaining its dedication to expansion goals led by additional stimulus and infrastructure investment," Gaines added.
China, the world's top steel producer, reported its second-highest ever yearly imports of the steel-making ingredient in 2019 as Beijing boosted stimulus to avoid an economic downturn, prompting strong demand from the infrastructure and property industries.
Fortescue posted record half-year iron ore imports of 88.6 million tonnes last month when it revised down its cost guidance to US$12.75–US$13.25 per wet metric tonne and signaled production would reach the top end of its target range. The company has been increasing the mix of premium feed-in its shipments with the addition of its West Pilbara Fines products, which had enabled it to attain a pricing of 84% of the Platts 62% index for the previous four quarters, it stated.
Gaines said that producers are turning to cheaper and lower grade ore, as steel prices are currently under pressure, Gaines said. "There is no doubt that steel margins are under pressure, which does underpin the strength of our product."
The miner also maintained its forecast iron Ore guidance of shipments at the upper end of the 170-175 million tonne range despite supply interruption in Western Australia. Earlier this Month, Cyclone Damien pressured Rio Tinto to lower its production forecast.
Lilac Solutions, a mining tech firm aiming to enhance Lithium extraction efficiency and sustainability, has secured $20m in Series A funding. The investment is led by Breakthrough Energy Ventures, a $ 1bn fund established in 2015 by Bill Gates and some private investors that offer investment opportunities for companies with innovative solutions to tackle the climate crisis. Other environmentally-minded investors include MIT's The Engine fund and Lowercarbon Capital. Series A funding is a form of investment provided to companies with a workable monetization plan for their businesses. Lithium-ion batteries are increasingly in demand for powering electric vehicles, an expansion market that could see sales of 44 million electric cars per year by 2030, according to statistics from the International Energy Agency (IEA). Lithium-ion batteries can also be used for storing renewable energy. Even though there's enough lithium in the ground to meet demand, Bloomberg New Energy Finance estimates less than 1% of the world's lithium deposits will be depleted over the next twelve years, and there are worries production will not meet demand. As demand for the metal increases, some analysts predict a lithium Innovators in Lithium mining secure investment from Bill Gates-led fund
shortfall by 2023.The current extraction method for lithium is to pump underground residue of briny water to the surface, letting the water evaporate into large salt ponds. The remains are later treated with chemicals and processed and filtered to leave lithium. According to Lilac Solutions, this procedure provides a 40% lithium recovery.
The existing method also uses large amounts of water, especially in countries that are already water-stressed. Each ton of lithium extracted from brines requires an estimated 70,000 liters of clean water.
Lilac Solutions states that the current processes for lithium extraction are inefficient, costly, and cannot deliver in volumes necessary for an electric vehicle future. The company is working to commercialize a new ion exchange technology that is more scalable, cheaper, and faster than the existing method.
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AS MAJOR GLOBAL COAL PRODUCERS GET READY TO LEAVE S AFRICA
Lack of funding leaves junior minors ‘stuck
The South African coal market will face more challenges to supply coal to fuel its electricity demand, following the departure of some major global coal producers from the country, sources told S&P Global Platts. Coal majors South32 and Anglo American have sold or are in the process of auctioning their thermal coal operations to Mike Teke's local firm Seriti Group, which with one other miner, Exxaro, is prepared to provide the large majority — approximately 80% to the country's biggest electric public utility company Eskom. INDIA TO PHASE OUT COAL IMPORTS According to official statistics, Southeast Asia, most notably Pakistan and India, accounted for nearly all purchasing of total thermal coal from South Africa, about 70% in 2019, up from 64% in 2018. However, India intends to eventually phase out coal imports and concentrate on renewable energy with the country's energy ministry Pralhad Joshi early, making a public statement that imports of the commodity will be phased out within the next three to four years.
Two major changes have recently revealed that obtaining coal to fuel power stations may assert difficulty for South Africa. The first is that South Africa's biggest consumer of thermal coal, India, intends to phase out all thermal coal imports by 2024. The next is Glencore — the largest producer of thermal coal for the seaborne market – announcing its plans to leave the SA coal market, having stated they will allow its coal reserves in the country to deplete in order to meet its Scope 3 goals, which is to reduce greenhouse gas emissions by 30% by 2035.
Glencore's total SA thermal coal exports measured 13 million mt in 2019, down a remarkable 25% from 17.3 million mt in 2018, according to the organization's official production report. Sources have noted that only two domestic miners will remain as the major coal producers "will be leaving" the market,
"They're cash strapped, they will not be able to receive funding from the bank," a South Africa-based analyst said. Another source added that the only potential funding could be from the government, through its mining company African Exploration, Mining & Finance, then mines would be owned by the government.
For an extended period, the junior domestic miners have faced difficulties gaining funding from banks that are under pressure to cut backing for coal projects, which now stand to dominate coal supply. "Coal is becoming less and less popular globally. So, nobody wants to spend more money on mining and exploration in case it doesn't have a long term future," a UAE-based trader said.
20 | SKILLINGS MINING REVIEW March 2020 "In the end, I don't think we'll ever see SA coal export volumes [to India] increase any more compared to the current levels, '' a Dubai-based trader said."I hope I'm wrong, but let us see."
