Global iron ore supply to grow, demand outlook positive

The global iron ore market will be with rather solid fundamentals for the remainder of 2021, as the outlook of demand both in near term and long term is likely to stay positive and supply will grow too, according to the panellists at a discussion at SGX's Singapore International Ferrous Week on July 13, a three-day event.

"On the supply side, this year, we are projecting that global iron ore supply with seaborn iron ore market specifically will grow by about 35 million tonnes year on year, followed by about 20 million tonnes of expansion into 2022. And in addition to that we are also expecting Chinese domestic iron ore production to grow at about 18 million year on year after a similar level of growth in 2020," Tracy Liao, vice president of Citi's Commodities Strategy, shared during the panel discussion.

"These strong on-year growth is not only contributed by the planned expansion from big listed miners, but also as a result of price-induced production additions from high-cost producers...probably in 2021 and 2022," she said, adding that uncertainties remain in the medium to long term in the global iron ore market.

Among the high-cost producers, India, a key contributor, may see its iron ore imports decline structurally starting 2021 and onwards after a robust year in 2020, mainly due to the growing demand from its domestic steel mills now that its crude steel output is returning to the pre-COVID level.

Other than India, added iron ore supplies have also been observed from a few other countries including Ukraine, Canada, and Brazil besides Vale with pellets being the main product, while destinations have been diversified from China to other countries as well with the recovery in economic and industrial activities, she added.

As for added supply from China's domestic iron ore mines will mainly rely on existing operations, though the volume will be constrained despite high prices as the country's greater emphasis on environmental protection and safety, Liao added, sharing that, "so structurally, we are expecting Chinese domestic iron ore to decrease over the next 3-5 years alongside potentially falling iron ore prices".

As for demand, she expected China's steel demand to stay strong in the second half of 2021, resulting in another strong on-year growth for 2021 even with the slow-down in newly-launched property projects, though a structural downtrend may occur in the following years.

Rod Dukino, vice president of BHP's Iron Ore Sales & Marketing, shared his optimism on iron ore demand for the rest of 2021 too at the panel discussion, pointing out that high steel prices and steel margins are driving steel productivity and iron ore demand.

His optimism goes beyond 2021 to the next 30 years regarding the world's demand for ferrous commodities, reasoning that the world does need a lot more commodities during the period of increasing standard of living for people and decarbonization.

Simon Farry, vice president of Rio Tinto's Iron Ore Sales & Marketing, and Luiz Meriz, global iron ore sales director of Vale, both present at the same panel, shared the optimism about steel and iron ore demand this year in all the major steel-consuming countries other than China too as many major economies have been gradually get rid of the impact of the COVID-19, and their steel prices have been persistently high.

The overall robustness in the global ferrous market has lent great support to seaborne iron ore prices, and Mysteel SEADEX 62% Australian Fines has been hovering above $200/dmt CFR Qingdao since early May, a record high since the existence of the 62% iron ore pricing index around 2008-2009.

Written by Victoria Zou, zyongjia@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.