Iron ore industry report: October 2019

2019 has been an eventful year for the iron ore industry.

At the start of the year, iron ore was priced at around $75 USD per tonne but following the Vale disaster in Brazil in January, the market experienced a supply squeeze, pushing prices up to $120 by July. For the first time in 5 years, the price surpassed $100.

The price has dropped off since the peak this winter and is currently sitting at $90 – still significantly higher than prior to the dam failure at the Vale site in Brazil.

While Vale is slowly recuperating from their losses, it’s going to take a long time to fully recover. The subsequent shutdown of the mine took away 25 million tonnes of ore. That’s quite a chunk out of the 170 billion tonnes in the global supply chain. When it does re-open operations in 2020, the Vale mine will produce less than one third of what it used to.

While Vale is out of action, the market for iron ore isn’t going away. 1.6 billion tonnes of steel is produced annually, with iron as the main ingredient, and that figure is growing.

As a result, there’s a huge amount of pressure on the global industry to deliver – and Australia’s role is set to be iron-clad. Many large economies such as China and India are experiencing a growth in iron demand, and both are included in the top 3 biggest steel producers in the world.

Whilst their mines can produce large quantities of iron ore, the raw materials found there contain a lot of impurities. It’s of a poorer quality which makes it too expensive to produce. With high-grade iron ore, they can produce better quality steel for less and the process is also less polluting. 

Despite being the fourth largest producer of iron ore, India’s imports of mineral rose 157% during April-December 2018. Imports spiked to 12.8 million tonnes in July 2019 up from 7.09 million tonnes in 2015-16, driven by a shore-based steel plants’ preference for higher grade ore, as well as lower important duties and higher costs for sourcing domestically.

As China ramps-up steel production to outpace the US, its iron imports are set to surpass 100 million tonnes this month. According to Reuters and official data from the CCP, this is only the third time in history that imports have been so high, with Australia’s share in the value of exports to China reaching a record 38% or $117 billion – more than any other country.

Australia produces 30% of the world’s iron, and much of it is super-high-grade. Markets looking for high-quality iron ore are opting for grades of 65% Fe or higher.

As long as iron ore giant Vale is knocked out, the Chinese market is still hungry for iron. Australia has some of the best ore in the world and is likely to fill the gap.