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Traders and experts are taking a bearish view on the iron ore sector heading through to the end of 2022.
The trigger for optimism into the end of 2022 for the industry was supposed to be the unwinding of China’s Covid Zero policy and a flood of support for its ailing property sector.
While China is opening credit lines and attempting to boost infrastructure spending to protect its slowing economy, this week’s national congress — Xi’s likely coronation as China’s long term leader — has shown it is hardly any closer to ending its hard line Covid containment policies.
Both miners and analysts alike say demand for major commodities is slowing as a result.
“The iron ore markets have all but given up on 2022, with only limited optimism among traders,” Fastmarkets Asia ferrous editor Paul Lim said.
“The Chinese steel industry (is) still reeling from the new Covid-19 lockdowns in Shanghai, which is a key consumption centre for many downstream steel industries.
“Add to the ongoing property slump and developer problems, there’s little to cheer about, especially as steelmakers are still seeing tight margins from downstream steel sales.”
Rio Tinto (ASX:RIO) was similarly downbeat in its quarterly production report yesterday.
“Commodity prices continued their downward trend during the quarter and there are further downside risks to demand as the global economy slows,” the world’s largest seaborne iron ore miner said yesterday.
The September quarter saw a significant slowdown in iron ore demand, with prices falling around a quarter according to S & P Global Platts.
This malaise has continued into October.
Steel output has not collapsed, but demand for lower and mid-grade fines has come back as mill owners in the world’s largest steel producing country preference business imperatives over environmental and quality concerns.
“Steelmakers are mainly still chasing low- and mid-grade fines, and not looking to consider higher-grade iron ore fines or direct-charge material for their blast furnaces in a bid to improve profitability and keep steel production volumes low,” Lim said.
“Production caps add to the bearish iron ore demand.”
He said Chinese government stimulus will cheer the market up, “but it all boils down to fundamental demand, which looks set to remain poor until the construction sector kicks into higher gear.”
According to Fastmarkets MB 62% benchmark fines were fetching US$93.68/t on Monday, down 9.79% on their recent six week high of US$103.85/t.
In the same time prices for 65% iron ore fines have fallen 8.58% to US$106.50/t, while 58% iron ore fines have fallen just 6.57% to US$80.77/t, a realisation of 86.21%.
The other risk for iron ore prices is heightened near term supply, with Vale and Rio in particular planning to scale up production and shipments to hit guidance in the December quarter.
Rio has avoided cuts to its guidance for the first time in several years in 2022, albeit it on a somewhat unambitious 320-335Mt range.
After producing an average of 78.1Mt across the first three quarters of the year, it must turn out almost 86Mt of iron ore through the final three months of the year to make its lower end.
Vale produced 89.7Mt of iron ore fines in the September quarter but sold just 69Mt, with RBC analyst Tyler Broda saying extra tonnes could be sold into the market over what is already expected to be a strong quarter for output.
RBC expects iron ore prices to fall to average US$80/t in the fourth quarter.
“The extra iron ore production – especially considering the weak price action in Q3 – could put pressure on the iron ore market with extra tonnes to be sold over what we already expect to be a strong Q4 from a global production perspective,” Broda said.
“We continue to stay cautious on iron ore prices, however VALE continues to trade at a discount to our NAV and the potential base metals sale/spin we think could be a positive catalyst over the coming months. We maintain our Outperform recommendation.”
Despite the near term uncertainty the big miners remain positive about the long term outlook for iron ore, and particularly the need to develop quality assets with high product grades to satisfy the demand for steel from the energy transition.
BHP (ASX:BHP) has already outlined a pathway to hit a run rate of 330Mtpa by the end of the decade, with a focus on lump and other premium products with better environmental outcomes than low grade fines.
Fortescue (ASX:FMG) will bring its 22Mtpa Iron Bridge magnetite mine online in 2022 and has submitted environmental approval applications to expand its hematite shipping capacity from 188Mtpa to 210Mtpa in Port Hedland.
MinRes (ASX:MIN) has approved the development of its 35Mtpa Onslow Hub in partnership with Baowu, Posco and AMCI.
And yesterday Rio Tinto (ASX:RIO) announced a modernised JV arrangement had been reached to develop the Rhodes Ridge mine in partnership with Wright Prospecting, a private company consisting of some of the descendants of Lang Hancock’s business partner Peter Wright.
An ‘order of magnitude’ study is the first port of call. The real prize here is the high quality of the untouched Rhodes Ridge’s resource base.
At 5.8Mt with an average grade of 62.3%, it will boost Rio’s overall grade and support the rollout of its flagship product, the ~62% Fe plus Pilbara Blend Fines mix for years to come. More resource drilling is under way, with the broader project area containing 6.7Bt at 61.6% Fe.
“Rhodes Ridge contains one of the biggest and best undeveloped iron ore deposits on the planet with proximate access to existing infrastructure,” Rio’s iron ore chief Simon Trott said.
“We are very excited we have been able to strengthen our relationship with Wright Prospecting and have a pathway to bring this high quality resource to market.
“With its significant resource base, the Rhodes Ridge project has the potential to underpin production of the Pilbara Blend in the decades ahead.”
Rio, of course, is continuing to work on the Simandou mine with a number of Chinese partners in Guinea, which could deliver over a hundred tonnes of new high grade iron ore each year to the market depending on whose estimates you believe.
Scroll or swipe to reveal table. Click headings to sort.
| CODE | COMPANY | PRICE | % WEEK | % MONTH | % 6 MONTHS | % YEAR | MARKET CAP |
|---|---|---|---|---|---|---|---|
| ACS | Accent Resources NL | 0.025 | 0% | -17% | -57% | -55% | $ 11,650,682.08 |
| ADY | Admiralty Resources. | 0.007 | -13% | -22% | -56% | -61% | $ 9,125,054.07 |
| AKO | Akora Resources | 0.195 | 3% | -7% | -38% | -3% | $ 12,381,904.08 |
| BCK | Brockman Mining Ltd | 0.027 | 23% | 8% | -44% | -34% | $ 250,566,267.54 |
| BHP | BHP Group Limited | 39.63 | -1% | 4% | -15% | 15% | $ 198,022,925,534.04 |
| CIA | Champion Iron Ltd | 4.98 | -3% | -4% | -37% | 4% | $ 2,477,355,073.54 |
| CZR | CZR Resources Ltd | 0.0135 | -4% | -19% | -14% | 63% | $ 47,065,364.24 |
| DRE | Dreadnought Resources Ltd | 0.097 | 5% | -16% | 120% | 162% | $ 304,253,355.10 |
| EFE | Eastern Resources | 0.042 | 5% | 35% | -16% | 11% | $ 45,185,494.52 |
| CUF | Cufe Ltd | 0.015 | 0% | -21% | -55% | -59% | $ 14,491,685.48 |
| FEX | Fenix Resources Ltd | 0.245 | -6% | -6% | -22% | -2% | $ 143,009,910.40 |
| FMG | Fortescue Metals Grp | 17.07 | -3% | -3% | -21% | 17% | $ 52,065,296,763.38 |
| FMS | Flinders Mines Ltd | 0.57 | -5% | -7% | 11% | -33% | $ 96,243,688.89 |
| GEN | Genmin | 0.23 | -8% | 2% | 15% | 18% | $ 65,156,205.50 |
| GRR | Grange Resources. | 0.77 | -2% | 3% | -43% | 51% | $ 873,790,716.99 |
| GWR | GWR Group Ltd | 0.062 | -9% | -25% | -60% | -61% | $ 20,557,865.92 |
| HAV | Havilah Resources | 0.3 | -3% | -15% | 54% | 62% | $ 98,158,155.10 |
| HAW | Hawthorn Resources | 0.09 | 0% | -6% | -31% | 55% | $ 30,016,405.17 |
| HIO | Hawsons Iron Ltd | 0.097 | -75% | -79% | -80% | 20% | $ 103,747,413.00 |
| IRD | Iron Road Ltd | 0.13 | -10% | -10% | -30% | -37% | $ 103,981,969.52 |
| JNO | Juno | 0.1 | 0% | -17% | -33% | -23% | $ 12,887,510.10 |
| LCY | Legacy Iron Ore | 0.02 | 5% | 0% | -35% | 33% | $ 121,729,697.78 |
| MAG | Magmatic Resrce Ltd | 0.1 | -13% | -26% | 14% | -5% | $ 29,203,547.78 |
| MDX | Mindax Limited | 0.059 | 0% | 0% | 0% | 23% | $ 115,533,663.12 |
| MGT | Magnetite Mines | 0.021 | -16% | -22% | -47% | -12% | $ 79,627,265.80 |
| MGU | Magnum Mining & Exp | 0.041 | 14% | 14% | -52% | -38% | $ 19,720,662.04 |
| MGX | Mount Gibson Iron | 0.405 | -2% | 0% | -39% | -11% | $ 473,623,539.87 |
| MIN | Mineral Resources. | 69.49 | -2% | 5% | 12% | 60% | $ 13,079,658,276.00 |
| MIO | Macarthur Minerals | 0.14 | -13% | -15% | -69% | -66% | $ 24,848,023.20 |
| PFE | Panteraminerals | 0.125 | 9% | 14% | -26% | -64% | $ 5,665,123.20 |
| PLG | Pearlgullironlimited | 0.025 | 0% | -11% | -67% | -83% | $ 1,372,557.70 |
| RHI | Red Hill Iron | 3.45 | 1% | -7% | 1% | 0% | $ 217,653,988.09 |
| RIO | Rio Tinto Limited | 94.27 | -3% | 2% | -22% | -5% | $ 34,946,294,385.96 |
| RLC | Reedy Lagoon Corp. | 0.014 | 0% | -7% | -58% | -46% | $ 7,803,976.77 |
| SHH | Shree Minerals Ltd | 0.008 | -11% | -20% | -50% | -27% | $ 9,907,895.14 |
| SRK | Strike Resources | 0.14 | 33% | 22% | -7% | 8% | $ 31,050,000.00 |
| SRN | Surefire Rescs NL | 0.013 | 0% | -13% | -35% | -13% | $ 20,557,725.20 |
| TI1 | Tombador Iron | 0.023 | -21% | 0% | -45% | -48% | $ 51,287,576.95 |
| TLM | Talisman Mining | 0.14 | 0% | -3% | -20% | 4% | $ 26,283,529.58 |
| VMS | Venture Minerals | 0.023 | -8% | -12% | -61% | -55% | $ 38,581,524.62 |
| EQN | Equinoxresources | 0.13 | -7% | -21% | -34% | -50% | $ 5,400,000.12 |
| AMD | Arrow Minerals | 0.0045 | 0% | -10% | -10% | -25% | $ 9,151,942.92 |
Meanwhile, energy hungry China wants to produce 4.6Bt of thermal coal internally by 2025, a massive 500Mt up on its 2021 production record.
That’s 12.7% up, or roughly 2.3 times the amount Australia, the world’s second biggest exporter of seaborne thermal coal after Indonesia, produces every year.
Newcastle thermal coal was down slightly to around US$392/t yesterday, though it is worth noting Aussie coal remains banned by China, so it’s unlikely China’s plans to ramp up production will have a direct effect on Australian exports at the moment.
Australian coal miners are still enjoying the glowing halo of record prices.
TerraCom (ASX:TER) on Monday announced September quarter EBITDA of $180 million despite an additional $56.1m in costs from the Queensland Government’s royalty regime increase which kicked in on July 1.
The Blair Athol coal mine owner expects to announce a dividend in November just months after a maiden dividend was paid for the 2022 financial year.
Scroll or swipe to reveal table. Click headings to sort.
| CODE | COMPANY | PRICE | % WEEK | % MONTH | % 6 MONTHS | % YEAR | MARKET CAP |
|---|---|---|---|---|---|---|---|
| NAE | New Age Exploration | 0.008 | 14% | -33% | -41% | -27% | $ 11,487,191.28 |
| CKA | Cokal Ltd | 0.235 | -4% | 4% | 38% | 27% | $ 211,826,020.50 |
| NCZ | New Century Resource | 1.13 | -4% | -22% | -48% | -51% | $ 150,639,319.95 |
| BCB | Bowen Coal Limited | 0.375 | 9% | 4% | 12% | 103% | $ 588,058,934.56 |
| LNY | Laneway Res Ltd | 0.21 | -13% | -13% | -5% | 10% | $ 34,870,179.79 |
| GRX | Greenx Metals Ltd | 0.29 | 12% | 14% | 45% | 6% | $ 67,209,422.96 |
| AKM | Aspire Mining Ltd | 0.094 | -1% | -10% | 3% | -6% | $ 47,717,876.59 |
| AVM | Advance Metals Ltd | 0.014 | 27% | 17% | -18% | -30% | $ 6,690,283.63 |
| AHQ | Allegiance Coal Ltd | 0.053 | -7% | -41% | -87% | -88% | $ 35,991,007.00 |
| YAL | Yancoal Aust Ltd | 5.83 | -4% | -4% | 7% | 55% | $ 7,684,957,523.34 |
| NHC | New Hope Corporation | 6.91 | 3% | 24% | 94% | 178% | $ 5,988,165,020.67 |
| TIG | Tigers Realm Coal | 0.014 | -22% | -30% | -13% | -48% | $ 182,933,833.15 |
| SMR | Stanmore Resources | 2.69 | 6% | 16% | 40% | 152% | $ 2,343,592,414.80 |
| WHC | Whitehaven Coal | 10.41 | 0% | 21% | 128% | 220% | $ 10,040,744,437.20 |
| BRL | Bathurst Res Ltd. | 0.995 | 11% | 11% | -10% | 12% | $ 183,705,388.80 |
| CRN | Coronado Global Res | 1.97 | 1% | 10% | -9% | 46% | $ 3,453,494,683.80 |
| JAL | Jameson Resources | 0.07 | 0% | 0% | -17% | -18% | $ 24,374,231.84 |
| TER | Terracom Ltd | 1.05 | -3% | -2% | 75% | 500% | $ 839,494,181.40 |
| ATU | Atrum Coal Ltd | 0.009 | 13% | 20% | -28% | -78% | $ 8,070,752.03 |
| MCM | Mc Mining Ltd | 0.26 | -10% | -42% | 107% | 173% | $ 53,366,814.90 |
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