Friday 16 November 2012

Iron-ore prices to remain volatile to 2020 – report

By: Idéle Esterhuizen
15th November 2012
JOHANNESBURG (Mining Weekly) – While iron-ore prices appeared set to make a partial recovery, they would remain volatile, as revised Chinese growth targets and performance were likely to result in further short-term peaks and troughs up to 2020, metals and minerals research firm Roskill’s new ‘Iron-Ore: Market Outlook to 2020’ report has revealed.

Risk factors include uncertainty over the eurozone and its impact on iron-ore demand and availability, as well as on cost of capital; growing resource nationalism, particularly in Africa; highly unpredictable energy costs; rising labour costs; and the fate of the Indian mining industry following the mining bans in Goa and Karnataka states.

With the disruption of supplies from India, concerns over slowing economic growth in China and the effects of large stockpiles forcing the price of iron-ore through a series of supposed ‘price floors’, the industry faced a turbulent 2011 and 2012.

Following the slump in prices from June to September, Roskill expected prices to remain above $120/t cfr for 63.5% Fe content Indian fines until the end of 2014, while a restocking phase could push prices towards $135/t during 2013.

The firm noted that large fluctuations were likely and that the industry’s price floor would gradually drop as new capacity came on-stream. Roskill envisaged that the $100/t price level would be repeatedly tested and eventually broken towards 2015.

Against this backdrop, and adjusting for inflation, prices were expected to trend towards $85/t and $95/t during 2016 to 2020.

Despite downward revisions in the long-term outlook for iron-ore demand and prices, Roskill estimated that an additional 425-million tons a year of nameplate capacity would come on board from the middle of 2012 to the end of 2014.

These capacity additions would continue to surpass 100-million tons a year to 2020 and were foreseen to exceed demand growth and represent low- to medium-cost operations mostly.

“Consequently, producers at the higher end of the cost curve, particularly those in China, will gradually find themselves unable to compete in the open market,” Roskill said.

From now to 2020, corporate control of seaborne trade in iron-ore was expected to increase, as the limited availability of capital would make securing project financing increasingly difficult for emerging producers.

Much of the increase in control was expected to come from Australia and Brazil, as well as from projects backed by leading steel producers seeking to secure future supply.

Meanwhile, demand for steel is expected to grow at a slower rate in 2012. The World Steel Association expected apparent consumption of finished steel products to grow by 2.1% in 2012, down from 6.2% in 2011.

Although a partial recovery in demand growth appeared likely, supported by the construction sector in China and increased infrastructure spending, rising demand from other emerging nations during the period to 2020 was unlikely to fully offset the slowing pace of growth in the intensity of steel use in China, which was approaching a peak in per capita steel consumption.

Roskill expected growth in apparent crude steel use to average 2.9% a year from 2012 to 2020.

Owing to the ongoing shift of steel production to countries with a higher use of iron-ore per unit of steel, the firm forecast that at 3.1% a year, demand for iron-ore would marginally outpace steel demand, despite a relative increase in the use of scrap metal.

Edited by: Mariaan Webb

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