Supply pressure weighs on global iron ore market in Q1 2022; outlook remains weak

• Australia leading exporter despite drop in shipments
  
  
• Seasonal factors impact Brazilian supplies
  
  
• Steel production outlook bleak in China
  
  

The global iron ore (including pellets) trade scenario was marked by marginal supply tightness in the first quarter (Q1) of 2022 due to a wetter-than-usual monsoon season in Brazil and after Russia's invasion of Ukraine further tightened supply. Notably, Russia exported a total of 25 mn t iron ore in CY'21.

All the major global miners reported a drop in production volumes during the quarter, with demand in China falling, first due to the winter production curbs, and subsequently the COVID-19 resurgence.

Leading exporters

Australia remained the largest iron ore exporter by shipping 201.6 million tonnes (mnt) during Q1, with China alone accounting for over 165 mnt, as per SteelMint data. Australia's iron ore exports had fallen marginally in 2021 to 856 mnt due to China's emissions control policies and steel production cuts in the second half of the year.

Among the major miners, Rio Tinto produced 71.7 mnt, 6% lower than the first quarter of 2021. Pilbara shipments in the first quarter were 8% lower than the first quarter of 2021. However, the company expects increased production volumes and improved product mix in H2 2022 with the commissioning and ramp up of the Gudai-Darri mine, commissioning of the Robe Valley wet plant and improved mine pit health. Full-year shipments guidance remains unchanged at 320-335 mnt.

Likewise, total iron ore sales from BHP's Western Australia operations were 67.1 mnt in the three months to March 31. Full-year guidance for has been held at a range of 249 mnt to 259 mnt. BHP informed that temporary labour constraints due to COVID-19, train driver shortages and planned maintenance activities led to sales falling by 8% quarter-on-quarter.

Brazil saw iron ore exports dropping by over 10% y-o-y in Q1. Leading miner Vale sold 53.6 mnt of iron ore in the quarter, down 9.6% y-o-y. Including pellets, total iron ore sales volume was 60.6 mnt. Vale's production fell 6% from the previous year, hit by heavy rainfall in Jan'22 in Minas Gerais state. Production was lower also due to major maintenance services.

Although annual guidance stands at 320-335 mnt, Vale is yet to ramp up output as projected before the Brumadinho dam disaster.

Among the other exporters, shipments from South Africa rose marginally y-o-y to 16.5 mnt in Q1, while at 11.1 mnt Canada's exports fell by nearly 15% y-o-y.

Notably, India's iron ore exports fell sharply to 6.2 mnt in Q1 compared to over 16 mnt in Q1 2021 on absence of demand from China, particularly for high-grade feedstock such as pellets, due to declining steel margins of producers. India's exports have climbed down quickly since the highs of 2020 mainly due to receding demand from China.

Major importers

China's iron ore imports in Jan-Mar'22 totalled 268.4 mnt, down 5.2% on-year, according to data released by the country's General Administration of Customs. China's crude steel production stood at 243.4 mnt in Q1, down 10.5% from the same period a year earlier.

State planner National Development and Reform Commission will continue to reduce crude steel output this year and has pledged that output would be lower than 2021. The steel industry expects the government to maintain output controls as it aims to bring its carbon dioxide emissions to a peak by 2030. The ferrous sector contributes some 15% of China's total greenhouse gas discharge.

Among the other leading seaborne iron ore consumers, Japan saw imports at around 27 mnt during the quarter, largely stable y-o-y. South Korea, on the other hand, recorded a drop of around 7% y-o-y in iron ore imports during Jan-Mar'22 at 17.4 mnt.

Outlook

Expectation of a fiscal stimulus by the Chinese government to tackle economic slowdown had initially given rise to a positive outlook that sustained seaborne iron ore prices in Feb-Mar, but the COVID-19 outbreak and lockdowns in different provinces have disturbed supply chains and impacted downstream demand. Portside prices have weakened due to the lack of physical demand.

Both China's manufacturing and construction outlook remain dismal in Q2 and the steel industry expects further controls and checks in the latter half of the year by authorities tasked with implementing production control measures.

With supplies expected to ease from here on, iron ore prices are expected to come under further pressure in the remaining part of Q2 and Q3 of this year.