Volatility strikes iron ore while it’s hot

An analyst has described last week as the most volatile in iron ore history as prices dropped almost $US29/tonne to then gain more than $US18/tonne to maintain its  outlook.

While the fall in price was due to Chinese government intervention threats, the sharp rises were caused by a new enthusiasm for premium iron ore fines, according to Fastmarkets index manager Peter Hannah.

“Expanded quality differentials signal consumers’ willingness to pay up to raise productivity. The premium the 65% Fe Fines Index commands over the 62% Fe hit a record level too in recent weeks and is a key bellwether of steel mills’ profit motive,” Hannah said.

As China continues to stir up the market, Australian production is expected to grow over the next five years, according to the global iron ore mining outlook by Fitch Solutions.

Reinvestment and growth from BHP, Rio Tinto, Fortescue Metals Group and Brazilian miner Vale are expected to offset the demand of China and its effects on global output.

“We forecast iron ore production in Australia to grow at an annual average of 1.7 per cent over 2021-2025,” the Fitch outlook stated.

“We believe Australia’s seating at the lowest end of the global iron ore cost curve will provide a healthy buffer against falling prices in the coming years.”

The Fitch outlook shows iron ore rebounding strongly from circa-2015 when prices were at a decade-low average of $US55/tonne

Global iron ore mine output will grow by 2.4 per cent from 2021 until 2025, whereas the previous five years saw a loss of 2 per cent, according to Fitch Solutions.

This increase would see an extra 378 million tonnes of iron ore produced in 2025 compared to 2020 output levels.

“Production growth will stagnate over the longer term and we forecast production to actually peak around mid-decade at around 1.05 billion tonnes. This production slowdown will be due to mothballing of mines by junior miners and a pullback in capital expenditure by larger firms as iron ore prices decline,” the outlook stated.

BHP agreed in its economic and commodity outlook in August last year that iron ore demand will continue its upward trajectory.

“In the medium to long–term…the expected migration of steel capacity to the coastal regions, the inexorable trend towards larger furnaces and more stringent environmental policies – Chinese controls being now, holistically, the most demanding in the world – are all expected to underpin the demand for high-quality seaborne iron ore fines and direct charge materials such as lump,” BHP stated.

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