Iron ore prices to ease in next 12 months - BHP
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BHP, the world's third largest iron ore miner, expects iron ore prices to ease from the current levels in the next 12 months with "two-way volatility" along the process, according to its latest economic and commodity outlook report released on August 18.
"We consider that there are two major forces that could generate major iron ore price volatility in the coming year. The first is uncertainty regarding the re-emergence and containment of COVID-19 outbreaks. The second is seaborne supply uncertainty," BHP said in the report.
For the demand side, the iron ore miner has dismissed its earlier concern on "intra-year demand volatility", saying that it "no longer earns a place as a top tier potential source of price volatility on a short term forward looking basis".
After a short-term decline in February, the blast furnace (BF) utilization rate among many Chinese steel mills have recovered in the following months to a rather high level, it explained.
For first half of FY2021 (July-December), BHP envisage an easing off from these explosive run-rates for Chinese blast furnaces but "not an abrupt step down, as the economy-wide recovery is on a relatively firm footing", it said.
As for seaborne iron ore supply, BHP predicts that "it is still highly uncertain for this calendar year and next...both in aggregate and in terms of quality profile", continuing the status quo since Vale's dam tragedy in January 2019.
Besides, Brazil is one of the countries with the most severe COVID-19 outbreak, making the recovery trajectory in iron ore exports even more uncertain, and the normalization process could be a multi-year event, and the fluctuation of Brazilian export performance may generate volatility in both index and product pricing, according to BHP.
It highlighted, though, that "much of the tonnage uplift seen in calendar 2019 may not eventuate in calendar 2020", as the world's seaborne iron ore supply increased by around 40 million tonnes on year on the 62% Fe content equivalent basis in 2019, but in 2020, the virus and the other local factors "have made it difficult for some smaller export jurisdictions to retain their 2019 run rates in 2020 to date, despite the attractive price environment".
BHP noted that iron ore exports from South Africa, Peru and the Brazilian juniors, for example, have all been running behind their respective 2019 levels.
China's steel market has so far been the only robust among all the major steel producing countries in the world, with the blast furnace capacity utilization rate among China's 247 domestic steel mills, surged to 95.16% over August 7-13, a new high since Mysteel optimized the samples in the survey in January 2019, steadily up from the four-month low of 80.06% over February 21-27.
As of August 19, Mysteel's PORTDEX 62% Fe Australian Fines index, on the boost of the robust demand from China, surged to $128.65/dmt, or a new high since January 17 2014, after having slumped to $79.9/dmt on February 3.
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
