What's Ahead for Iron Ore ‐ January 2016
T o say that iron had a poor year in 2015 would be putting it quite mildly. While nearly every commodity went through a harsh bear market during the past year, iron in particular took it on the chin. Iron ore lost no less than 45% on the market through 2015, a worse performance than all of gold, silver, copper, and platinum. While there's no great white hope on the horizon for iron, there are a number of factors that appear to give it a badly‐needed shot in the arm to recoup some of the lost value of the past years. Iron Range Financing The Iron Range Resources and Rehabilitation Board has began to take steps to put its money where its mouth is in order to reinvigorate the iron mining community across much of middle America. The IRRRB decided to invest nearly $5 million from the Mining Reinvestment Fund across four different taconite projects through the US. Minntac Iron Ore Operations would receive the most out of the windfall, a little over three million dollars for kiln burners, fine dust collectors, and rock breakers. KeeTac would receive over one million for magnetic separators and and fine screen upgrades. Smaller operations at Mesabi Nugget and Mining Resources would receive fifty thousand dollars for line softening and magnetic separation, respectively. The IRRRB also decided to invest some one million dollars in the Northeast Higher Education District in order to improve mining engineering training for the next generation of workers. Canadian Proposals Canada's mines have been hit hard by the commodities bubble, but that hasn't stopped some companies from continuing with their vision and planning new
operations. British Columbia represents fertile ground for the mining industry, not only regarding iron but also for gold and diamonds, with half a dozen new projects that are in various developmental stages. Pretium Resources, for instance, managed to raise half a billion dollars in order to finance the construction of the Brucejack mine, while JDS Energy and Mining plans to employ around 200 people in their Silvertip mine near the Yukon border; the JDS CEO claims to have "shovels in the ground" at the end of 2015. By far the largest project is Seabridge's mine in northwestern British Columbia, a project with a price tag of over three and a half billion dollars. The Association of Mineral Exploration British Columbia has voiced their approval of the Seabridge project, claiming the risks to be low and the payouts to be large once operations can begin. Despite the downturn in the metals market over the course of the past five years, British Columbia now has eight more operational mines running or under construction than the province did back in 2011, suggesting a revitalization of the industry thanks to cost‐cutting measures and greater efficiency. Hebei Reduction Perhaps the largest piece of news that will affect the iron ore market comes as a godsend for most North American miners and manufacturers. Chinese manufacturing province Hebei has opted to cut their output of both iron ore and steel in 2016 in order to eliminate both overproduction and air pollution. The Chinese backlog of iron and steel has been a massive thorn in the side of American and Canadian miners, who claim that the foreign company can undercut prices without worrying about their bottom line due to state subsidies, a luxury that no other company can hope to compete with. The reduction of about ten million tons of iron (along with a further eight million tons of steel) will create a vacuum on the market that could go a long way towards pushing prices back up after hitting near‐historical lows. As the Chinese government has launched a new Five Year Plan designed to eliminate their hallmark oversaturation, domestic manufacturers will enjoy much more wiggle room to sell their products as demand grows while supplies dip. Hebei business leaders reported significant weakness in demand for their products, both at home and abroad, and have committed to cutting their output of industrial materials including metals as well as cement and glass. The ongoing slowdown of the Chinese economy represents a bittersweet moment for the iron industry: while the voracious market for iron appears to be closing, Chinese companies may only have a limited capability to out maneuver American, Canadian, and European manufacturers thanks to their low operating costs and government
subsidies.