Global iron-ore production will grow modestly, with mine restarts and expansions predicted in Brazil and India boosting production, predicts international market research firm BMI Research.
However, output growth in China will decline on the back of falling ore grades and high production costs, according to BMI’s industry trend analysis – ‘Iron-Ore: Only Modest Growth to Come’, released in November.
Iron-ore production will grow from 3.175-million tonnes in 2017 to 3.262-million tons by 2021, BMI Research states, adding that this represents an average annual growth of 1.2% for the period. This growth is a modest improvement, compared with the average growth of 1% during 2012 to 2016.
Supply growth will be predominantly driven by India, where mine restarts in the state of Goa will boost production, and Brazil, where mining major Vale is set to expand output with its new S11D iron-ore mine. In the first quarter of 2017, Vale reported record iron-ore production of 86.2-million tonnes, owing to the ramp-up of the S11D and Itabiritos projects.
Vale remains on track to produce 360-million tonnes to 380-million tonnes of iron-ore in 2017, accounting for 80% of Brazil’s total output. Vale predicts cash costs of $7.7/t at the S11D mine, as a result of integrated logistics and high-quality ore.
Brazil’s iron-ore output looks to remain strong in the coming years, owing to its low operating costs and solid project pipeline, with 14 of the country’s 32 new mining projects being iron-ore projects.
BMI forecasts that Brazil’s iron-ore production will increase from 420-million tonnes in 2017 to 480-million tonnes by 2021, averaging 4.2% yearly growth.
Meanwhile, the growth of India’s iron-ore output is expected to be supported by the removal of export taxes for low-grade ores. The country’s Mines and Minerals Development and Regulation Act will assist in streamlining licensing and reopening closed mines.
“We forecast India’s iron-ore output to grow from 185-million tonnes in 2017 to 221-million tonnes in 2021.” This represents average yearly growth of 6.6% during the period, higher than the average contraction of 5% year-on-year over 2012 to 2016, following mine bans in the three largest iron-ore producing states of Goa, Odisha and Karnataka, which have since been lifted.
China, on the other hand, which operates at the higher end of the iron-ore cost curve, will be forced to cut output, owing to falling ore grades. According to news agency Bloomberg, about 70% of the country’s iron-ore output is uneconomical at prices below $96/t.
Therefore, BMI explains, China’s iron-ore sector will experience more mine closures as historically low iron-ore prices will price out high-cost domestic miners, despite the temporary rally. Import growth is forecast to increase in the coming quarters, as steel production remains strong on fiscal support to the construction and infrastructure sectors. “We forecast Chinese iron-ore production will grow by 1% and 0% in 2017 and 2018 respectively.”
Despite, iron-ore inventories in China rising to an all-time high of 131.8-million tonnes in June, its fiscal stimulus cooling will reduce demand for steel production and, thus, prices of iron-ore will decline by 2018, states BMI.
As such, the research firm says, China, the world’s largest iron-ore producer, will lose market share to Australia and Brazil.
In Australia, iron-ore production is expected to slow with the exit of junior high-cost miners, as major players ramp up production. Major miners will increasingly focus on cost cutting, while a weaker Australian dollar further aids their pipeline of expansion projects. “Declining production costs will see major miners’ strategy being to increase output to reap economies of scale and remain economically sustainable.”
For instance, iron-ore miners Rio Tinto and BHP Billiton respectively boast cash costs of $14.30/t and $15/t of iron-ore, owing to intensive cost-cutting efforts.
“We forecast iron-ore production in Australia to register average yearly growth of 0.8% from 2017 to 2021, compared with the 11.5% from 2012 to 2016.”
Beyond 2017, iron-ore production will start to slow from 5% in 2017 to –3% in 2021 on the back of low prices. “We expect Australia to remain the second-largest global producer of iron-ore, after China, even with its production decreasing from 866-million tonnes in 2017 to 858-million tonnes by 2021. Australia’s share of global output will average 27.1% during this period.”