Brazil and Australia resume plans and reassert control over iron ore market

RIO DE JANEIRO, BRAZIL – Brazil, and Australia are expected to reassert their dominance of the iron ore market over the next two years as several new mines come on stream following the lifting of Covid restrictions.

Australia’s iron ore exports are expected to grow by almost 6% next year, with the Australian government now indicating that total export volumes could reach 874 million tonnes in 2021 (and likely more, as AXS Marine data already shows 876 million tonnes as of December 23, 2021), rising to 923 million tonnes in 2022 and again to 948 million tonnes in 2023.

The jump reflects the recent relaxation of Covid-related conditions, which has allowed mining companies to resume plans to develop new mining capacity.

Health restrictions and a lack of skilled workers prevented Rio Tinto, for example, from reaching total production (43 million tons per year) at its Gudai-Darri iron ore mine in Western Australia in early 2022, as planned.

Instead, the company will not start production until the first quarter of next year. Other mining projects will also get underway after delays last year.

With these hurdles out of the way, Australia may be looking at a potential export increase of some 50 million tons by 2022.

The development coincides with a simultaneous increase in exports from Brazil as the country reached pre-Brumadinho dam disaster levels.

The Australian government, which closely follows the production forecasts of its nearest competitor, estimates that Brazil’s ore exports could grow by almost 9% in 2022 now that Vale has increased production capacity at its Vargem Grande complex and resumed pellet operations.

The Australian government predicts that total exports from Brazil will reach 362 million tons in 2021 (but this is unlikely to happen, as AXS Marine data shows 338 million tons as of December 23, 2021), rising to 394 and 412 million tons in 2022 and 2023.

POSITIVE MOMENTUM

Overall market momentum is already favorable, with the world’s big four – Australia, Brazil, South Africa, and Canada – shipping approximately 356 million tons in the third quarter of 2021, up 6.5% from the previous quarter and up 13% from the first quarter.

The long-term trend is especially favorable for Australia and Brazil, which appear to be pulling ahead of their closest competitors. The percentage growth of the two leaders over the next two years is significantly higher than that of the following largest exporters, South Africa, Canada, and India.

India’s ore exports are expected to remain broadly flat in 2022 and 2023, as China finds it easier to source from its top sellers and as the country seeks to conserve more ore for its growing indigenous steel industry.

Indian steel producers had difficulty sourcing raw materials feedstocks for their product in 2020 as miners diverted supplies overseas.

South Africa and Canada will also see slower growth than the iron ore leaders, with South African exports expected to remain static in 2022 before rising 5% in 2023. Canadian exports will increase below 2% in 2022 and below 4% in 2023.

The share of Australia and Brazil in the volumes of the top 5 exporters is expected to reach 95.6% in 2023, significantly higher than the 88.5% recorded in 2021.

However, neither country is likely to gain economically compared to the last two years. The plunge in iron ore prices seen from August onwards will dent revenues for all producers: Australia’s iron ore export revenues will fall from US$153 billion in the 2020-2020 period to US$118 billion in 2021-2021 and US$85 billion in 2022-2023.

These estimates are based on an iron ore price forecast (FOB Australia 62% Fe basis) of US$79/tonne in 2022 and US$70 in 2023.

This is a far cry from the average of US$142/tonne that producers enjoyed in 2021, even with the price decline observed in the last four months.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error