The price of iron-ore has been negatively affected by not only lower Chinese demand growth but also the rapid growth in Australian iron-ore supply.
The slowdown in the growth of Chinese steel production has resulted in a large-scale reduction in its iron-ore requirements, which has had a significant impact on the viability of new West Africa-based iron-ore projects and the expansion of existing projects, says international research firm Wood Mackenzie.
Wood Mackenzie’s gross domestic product growth outlook for China this year is 7.1%.
“China would have been a key destination for West African iron-ore as Chinese entities were involved in financing and signing offtake agreements for a number of iron-ore projects,” Wood Mackenzie principal iron-ore markets analyst Paul Gray tells Mining Weekly.
Wood Mackenzie also highlights that several of these projects are based in Liberia, Sierra Leone and Guinea, which have been severely affected by the Ebola virus that has claimed more than 7 500 lives to date.
“We never had very high expectations for West African iron-ore production, or exports; however, our expectations are now even lower. The price of iron-ore has been negatively affected by not only lower Chinese demand growth but also the rapid growth in Australian iron-ore supply,” states Gray.
Wood Mackenzie points out that China accounts for two-thirds of global iron-ore imports, but that most other metals and minerals depend less on Chinese demand than iron-ore.
“Following iron-ore and coal, copper is arguably the next most significantly China-dependent commodity, with the [bulk] of production stemming from the Copperbelt region of Zambia and the Democratic Republic of Congo,” adds Wood Mackenzie global copper mine costs principal analyst Nick Pickens.
Wood Mackenzie says the appetite for investing in new projects and exploration has waned, which is reflected in the decrease in the share price performance of the junior mining companies listed on the London Stock Exchange and the JSE.
Nonetheless, the company states that, in contrast to the iron-ore projects in West Africa, much of the supply growth in the Copperbelt has been brownfield developments of existing operations, with much of the capital for these projects already invested.
“However, existing higher-cost copper producers are faced with surviving the current lower price environment.”
Pickens points out that gold mining major Barrick Gold has initiated procedures to suspend operations at its openpit copper-producing Lumwana mine, in Zambia, following the increase of royalty rates last month on openpit mining operations in the country.
The company estimates that Zambia’s mines are, on average, in the top quartile of the cost curve; therefore, further price weakness could result in more closures of some of Zambia’s older, high-cost mines.
Meanwhile, Wood Mackenzie also forecasts China’s total oil demand to grow by 3.3% year-on-year, or by 350 000 barrels of oil a day, reaching 11.03-million barrels a day by year-end.
The company believes that lower oil prices in the long term will negatively impact on oil supplies sourced from Africa.
“The biggest impact will be on oilfield developments that have not been sanctioned. If prices remain low, then those with marginal economics will be postponed.”