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Global iron-ore production growth will accelerate in the coming years – Fitch Solutions

27th August 2021

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

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Global iron-ore production growth will accelerate in the coming years, which research firm Fitch Solutions Country Risk and Industry Research says will “bring an end to the stagnation that has persisted” since iron-ore prices hit a decade-low average of $55/t in 2015.

The firm forecasts that global mine output growth will average 3.6% over the 2021 to 2025 period, compared with -2.3% over the previous five years. This will lift yearly production by 571-million tonnes by 2025, compared with 2020 levels.

Supply growth will be primarily driven by Brazil and Australia.

Brazilian miner Vale has aggressive expansion plans, while miners in Australia, including BHP Billiton, Rio Tinto and Fortescue, will re-invest currently buoyant profits into additional production.

In China, iron-ore production will rise once again in the next three to four years as the country works to increase its self-sufficiency and reduce Australian imports.

Nonetheless, as China's miners operate at the higher end of the iron-ore cost curve and domestic ore grades will continue to decline, Fitch Solutions expects Chinese mining companies to prioritise investment in overseas iron-ore mines, such as the Simandou deposit, in Guinea.

Looking beyond 2025, Fitch Solutions expects lower prices will eventually drag on production growth rates. The firm, therefore, forecasts yearly production growth to average just 1.1% over 2026 through to 2030, with output levels expected to stagnate by the end of the decade.

REGIONAL UPDATE

Starting in Australia, Fitch Solutions forecasts iron-ore production in Australia to grow at a yearly average of 1.8% over the 2021 to 2025 period.

While significantly slower than the average growth of 3% over the previous five years, this will still lift yearly output by 88-million tonnes by 2025, compared with 2020 levels.

“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.”

On average, the cost of producing iron-ore in Australia is $30/t, compared with between $40/t and $50/t in West Africa and $90/t in China.

Production growth will stagnate over the longer term and Fitch Solutions forecasts production will peak mid-decade at about 1.3-billion tonnes. This production slowdown will be the result of mothballing of mines by junior miners and a pullback in capital expenditure (capex) by larger firms as iron-ore prices decline.

Majors are, however, expected to continue decreasing costs and increasing production in the longer term, Fitch Solutions says.

Moving on to Brazil, the country’s iron-ore production growth will rebound in the coming years following contraction and stagnation over the 2018 to 2020 period.

Low operating costs, a solid project pipeline and Brazil's high-quality iron-ore, which is increasingly favoured by Chinese steel producers, will contribute to higher output.

Fitch Solutions forecasts Brazil's iron-ore production to increase at a yearly average rate of 10.6% to 542-million tonnes by 2025, compared with 397-million tonnes in 2020.

Production growth will slow over the longer term and Fitch Solutions forecasts average yearly growth of 1.8% over the 2026 to 2030 period, which will take yearly output to 592-million tonnes by 2030.

“The Brumadinho dam collapse has sparked a flurry of investigations into Vale's operations, leading to executive removals, idling operations and fines. The disaster triggered an initiative by Vale to decommission its remaining upstream tailings dams over the next three years, effectively cutting off 40-million tonnes of iron-ore a year,” Fitch Solutions pointed out.

Since the announcement, Fitch Solutions said multiple operations have been idled, causing further supply disruptions.

For example, the Brucutu mine (30-million tonnes a year) was idled for six weeks, allowed to reopen, then idled again days later following another court ruling, then finally reopened in June.

“We expect to see continued regulatory scrutiny over Vale and the iron-ore sector as the government grapples with the deadliest environmental disaster in the nation's history.”

China's iron-ore production will rise once again in the next three to four years as the country works to increase itself sufficiency.

Fitch Solutions forecasts production will reach a peak of more than one-billion tonnes in 2025, before declining again.

Growth in output will be hampered by weak iron-ore prices and tightening environmental regulations. China's iron-ore sector will become increasingly consolidated owing to the high costs of mining low-grade ore.

Environmental regulations in China will eventually result in the phasing out of iron-ore used in the production of steel as electric arc furnaces and decarbonised steel take precedence.

According to Bloomberg, about 70% of Chinese iron-ore output is uneconomical at prices below $96/t.

In particular, miners operating in provinces such as Hebei, Fujian, Guangdong and Xinjiang will take the strain amid a lower price environment, as they sit at the highest end of the iron-ore cost curve.

Meanwhile, India's iron-ore output growth will be supported by the removal of export taxes in the Union Budget for low-grade ores and the country's Mines & Minerals (Development & Regulation) (MMDR) Act, which will streamline licensing and reopen closed mines.

Although the MMDR Act will support ore output growth, the royalties included in the Act will limit the sector's overall growth potential.

As part of India's 2016 Union Budget, export duties for iron-ore lumps and fines below 58% iron content were reduced to nothing from 30% and 10%, respectively.

This reduction was aimed at boosting shipments from the western state of Goa, where the Supreme Court lifted an earlier iron-ore mining ban.

However, the decision by India's top court to cancel all iron-ore permits in Goa in February 2018 will mean that production from that state is likely to head lower rather than increase.

As a result, Fitch Solutions forecasts India's iron-ore output to grow from 174-million tonnes in 2020 to 194-million tonnes in 2030, with yearly output growth averaging 1.1% over the period.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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