Iron ore to hover at elevated levels until 2021: Moody’s
Iron ore prices are set to remain elevated through to the end of 2020 as Vale’s woes drag on, say analysts.
Iron ore prices should remain elevated through the remainder of this year and throughout 2020, according to Moody’s Investors Service, as supply remains tight in the wake of the deadly dam collapse in Brazil and Cyclone Veronica in Australia.
The spot price for Australia’s largest export was steady overnight, edging back 0.3 per cent to $US118 at tonne.
“Tight iron ore supply fundamentals prompted us to revise our price-sensitivity ranges upward,” Moody’s analysts said.
“Several events in Brazil and Australia have contributed to diminished supply of iron ore and we expect this situation to only slowly improve through 2019 and 2020.”
Today’s spot price was firmly up from around $US75 a tonne in January prior to the dam collapse in Brazil, when global iron ore supply was first squeezed after operations across a number of Vale’s iron ore mines in Brazil were suspended.
The disaster prompted the price of iron ore to surge from around $US75 a tonne to around $US90 a tonne.
Then in April, the impact of Cyclone Veronica further tightened supply, with BHP, Fortescue and Rio warning of lower production levels in the Pilbara, sending the price to nearly $US100 a tonne, before further downgrades by Rio in May pushed the price up to nearly $US110 a tonne.
By late June, the iron ore price had surged above $US120 a tonne after data showed record Chinese crude steel production in May, while stockpiles at China’s ports were at their lowest levels since 2016.
Chinese steel production is the main driver of iron ore demand.
“Based on initial 2019 guidance from major producers and slowing Chinese and global growth rates, we previously expected that the iron ore market would be in surplus in 2019 and that prices would moderate somewhat from 2018 levels,” the Moody’s analysts said.
“However, lower production in Brazil and, to a lesser extent, Australia, pushed the market into a deficit.”
While new capacity at the Roy Hill mine in the Pilbara has ramped up, production levels are insufficient to fill the gap created by Vale’s expectations of lower shipments, said in a note to clients.
Additionally, about 30 million tonnes of pellets produced by the Vale-BHP joint venture Samarco remain out of the market following separate dam collapse in Brazil in 2015.
“Higher output from major global miners and Chinese domestic producers will see prices fall somewhat, but supply will not fully recover,” the analysts said.
“We expect production levels from BHP, Rio Tinto and Fortescue to be higher in 2020 than 2019.
“However, Vale’s ability to restore production following a January dam collapse at a mine in Brazil will be the main driver balancing the market.”
