Shock and ore: A bulk commodity with no scarcity

Investors are steeling themselves as 2024 is shaping up as one of the worst years for iron ore with analysts forecasting a surplus of about 50 million tonnes on an annual basis.

The steelmaking commodity seems to currently have no scarcity – and its oversupply is poised to only worsen in the near-term, with Macquarie forecasting there will be a cumulative surplus of about 200 million tonnes of Fe over 2026-28.

Since the Resources and Energy Quarterly: March 2024 report, the Department of Industry, Science and Resources (DISR) notes resource and energy prices have declined in USD terms – a sharp fall in the metallurgical coal price and bouts of weakness in the iron ore price dominated strength in other prices.

Prices did rise in the latter half of Q1 2024, helped by signs of stronger global growth and new efforts by Beijing to stabilise its property sector and boost economic growth. However, DISR suggests prices are likely to fall modestly over the outlook period but remain above pre-pandemic levels, as supply generally rises faster than demand.

This year started with iron ore spot prices strengthening after steady rises in H2 2023, being driven by positive sentiment associated with the policy stimulus provided to the Chinese economy. 

In March, prices then fell to seven-month lows, reflecting mounting concerns about a rapid build-up of Chinese iron ore inventories amid sluggish growth in steel output. By 1 April, iron ore futures in Singapore fell 4.3% to US$96.70 ($143.39) a tonne – a 10-month low which added to its steep decline from more than US$130 in January.

While the rollercoaster ride is frustrating miners and investors alike, the long-term demand fundamentals for the steelmaking ingredient look strong.

global crude steel production reached 1.89 billion tonnes in 2023 and worldwide demand is expected to increase by 1.4x times by 2050.

Australia does not have a massive steel manufacturing sector but it is the world’s largest exporter of iron ore, as per BloombergNEF. In 2023, the country supplied 64% of total seaborne iron ore.

Three markets – mainland China, Japan, and South Korea – combined to account for 96% of Australia’s iron ore exports in 2023. Mainland China is by far the largest buyer of Aussie Fe, buying 84% of its exported volume.

Brazil is a distant second in terms of being one of the largest exporters of iron ore – accounting for 25% of the traded bulk commodity last year.

As the global steel supply chain transitions, BloombergNEF reports Australia will also have to transition to stay relevant in the sector, avoid stranded assets, and capture emerging opportunities for its export industries.

The World Steel Association (Worldsteel) reports China is the world leader in steel production, producing 92.9Mt in May 2024, which is 2.7% higher than May 2023. India produced 12.2Mt, up 3.5%; Japan produced 7.2Mt, down 6.3%; while the US produced 6.9Mt, down 1.5%.

Global crude steel production for the 71 countries reporting to Worldsteel was 165.1 million tonnes in May 2024 alone – a 1.5% increase compared to the previous corresponding period.

In May, Africa produced 1.8Mt, up 0.9% year-on-year. Asia and Oceania produced 122.1Mt, up 1.6%. The EU produced 11.7 Mt, up 1.8%, while Europe (other) produced 3.9Mt, 6.2% higher. Most other regions also reported increases, although North America produced 9.4Mt, which was down 0.9% and South America produced 3.3Mt, also down 8.2%.

Steel the one?

All steel is originally made from iron – it is the fourth most common element in the Earth’s crust after oxygen (46%), silicon (28%), and aluminium (8%), according to Worldsteel.

However, the price of iron ore cargoes with a 62% Fe content fell 1.55% to US$111.31 per tonne yesterday (8 July 2024), weighing down majors including BHP (ASX:BHP), Fortescue (ASX:FMG), and Rio Tinto (ASX:RIO).

As mentioned, iron ore started 2024 about US$136/t and dipped below US$100 during March. It’s broadly managed to stay above that marker since then, however yesterday’s dip was a pullback from an over one-month high as a four-day rally triggered what Trading Economics reports was “some profit-taking, while investors continued to assess the outlook in top consumer China”.

Wood Mackenzie’s view is that the price for 62% Fe fines CFR China might average about US$110/t in 2024 and US$100/t in 2025. Goldman Sachs’ property team is a little more bearish and expects prices will likely fall to US$100 as early as this year.

However, NAB seems more bearish in its Minerals & Energy Outlook for July 2024 which forecasts prices could drop to below US$90 by next year.

“As we have noted in recent months, key drivers of demand remain relatively weak – most notably the prolonged (and likely to continue) downturn in China’s residential property construction sector – although the strength of China’s manufacturing sector may be providing some offsetting support,” NAB reports.

“That said, growing trade tensions – and the potential for expanded tariffs in major export markets – could begin to limit China’s steel production. Steel exports accelerated rapidly in 2023 (up by 47%), however the growth has started to slow – up by 23% year-on-year in the first five months. Our forecasts are unchanged – we expect iron ore to average US$108/t in 2024 and ease further in 2025 to US$87/t.”

Ore the world’s needs

Whether it is future green energy, transport systems, climate-resilient infrastructure, construction and housing, low-carbon manufacturing or agriculture, steel is at the heart of the world’s development.

Increasingly, circular economic approaches are prolonging steel’s useful life, according to Worldsteel. The association says the steel industry is an integral part of the circular economy – with the material ideally suited to be remanufactured, reused, and ultimately recycled.

Iron is made by removing oxygen and other impurities from iron ore. When it is combined with carbon, recycled steel and small amounts of other elements it becomes steel. Once made, it is a permanent resource – it is 100% and infinitely recyclable without any loss of properties.

Steelmaking is a global industry, and raw materials (such as iron ore and scrap) and steel products are traded globally with the lion’s share of the world’s steel production currently taking place in Asia, Worldsteel reports.

Some 70% of the steel is produced by the blast furnace process using coal as a raw material for process and source of energy.

The cooling off in iron ore prices is largely blamed on a lack of new activity in China’s property sector and ongoing stockpiling. China’s protracted housing slump – now in its third year – has stymied the world’s second largest economy with top policymakers trying to revive homebuying sentiment amid falling prices and large swathes of unfinished apartments and residential buildings.

In mid-May, Chinese policymakers announced a series of measures to help local governments act to support the country’s property market.

Goldman Sachs reports iron ore inventories at Chinese ports are the highest in more than two years and are reportedly still rising, signalling weaker demand from steel mills for metal production.

In its Resources and Energy Quarterly: March 2024 report, DISR says the IMF now expects China’s economy to grow by 5% in 2024 and 4.5% in 2025, easing to 4.1% by 2026 — in line with a long-term trend towards lower economic growth.

“Prospective property buyers in China appear to have been holding off purchases in case of further price falls; the lack of bids has made those price falls self-fulfilling. If taken up sufficiently by local governments, the new measures by Beijing will act to support household confidence and thus lift domestic demand,” DISR reports.

Amid this tumultuous backdrop, however, there has been some activity in the junior exploration space with early stage projects slowly advancing.

Australia is projected to continue ramping up greenfield projects from established producers Rio Tinto, BHP, and Fortescue, as well as emerging producers. 

One such company is Australian Critical Minerals (ASX:ACM). On 30 May, the company started iron ore exploration on its Pilbara portfolio. The company’s Cooletha Project is located north of Fortescue’s Cloudbreak Mine and northwest of Hancock Prospecting’s Roy Hill Iron Ore Mine.

As sampling work progresses and drill targets are defined at Cooletha and Shaw it is anticipated the currently known channel iron deposits (CID) areas will be extended and further CIDs may be identified.

An advanced, high-resolution satellite-borne sensor mapping study has been completed which is guiding the current sampling program. The Cooletha Project has excellent infrastructure with both Fortescue’s and Hancock Prospecting’s rail infrastructure transecting the tenements.

On 1 July, Australian Critical Minerals uncovered a “sizeable” uranium target while mapping and sampling iron ore targets at its Cooletha and Shaw projects in Western Australia’s Pilbara region.

The junior explorer has identified a 10km radiometric anomaly within the northern part of the Shaw Project tenement. Australian Critical Minerals says the 30m to 100m wide uranium anomaly compares in size to the Elliot Lake deposits in Ontario, Canada.

On 1 July, Legacy Iron Ore (ASX:LCY), Hawthorn Resources (ASX:HAW), and Hancock Prospecting reported a resource upgrade for the Mt Bevan Iron Ore Joint Venture project. This follows the completion of a drilling campaign of a total of 41 drillholes totalling 9,009m.

Modelling of the resource using the RPEEE pit shell as per JORC 2012 has resulted in a 10% increase in the total mineral resources to 1.29 billion tonnes from the 2013 MRE completed by SRK (1.17Bt).

The indicated resource is 380Mt at a grade of 33.94% Fe with a Davis Tube Recovery (DTR) of 43.15%. The inferred resource is 910Mt at a grade of 33.35% Fe and a DTR of 43.15%.

Hancock has the exclusive right to earn a further 21% in the project by funding a Pre-Feasibility Study (PFS). Upon completion of the PFS the JV ownership will be Hancock (51%), Legacy (29.4%), and Hawthorn (19.6%).

Hawsons Iron (ASX:HIO) is a magnetite development company focused on advancing its large-scale discovery at the 100% owned Hawsons Iron Project located in regional New South Wales, Australia.

On 24 June, Hawsons reported the drilling program in H1 2024 had completed as a follow-up to the H1 and H2 2023 programs and further defined the extent, tonnage and grade of shallow magnetite mineralisation in the Fold Zone south of the existing mineral resource.

The 2023 and H1 2024 programs confirm the existence of additional magnetite resources at a depth of 30-150m with a grade of 9% DTR or higher. These resources will help to further improve the Hawsons Iron Project’s cash flow during the first critical years of operation and also support the project’s current projected mine life.

2023: A year of highs and then …

In 2023, exploration for iron ore fell from near-decade highs following a period of growth that was triggered by the historical high prices of above US$200 a tonne in H1 2021.

A total of $171 million was spent on iron ore exploration in Q4 2023 in Australia, 13% lower compared to Q3 2023 and 2.2% lower than the same period in 2022. 

​​Australia’s iron ore export earnings were $136 billion last year, a 9.5% increase from 2022. In volume terms the country exported 893 million tonnes in 2023 – up by 1.1%. This was despite exploration spending being down year-on-year.

In terms of pricing, the rally through Q4 2023 and early 2024 came despite weakness in Chinese steel production, which was 13.5% lower and 6.9% year-on-year in December and January respectively. 

The estimate for Australia’s resources and energy exports in 2023–24 is comparable with the forecast contained in the March 2024 Resources and Energy Quarterly. The forecast for 2024–25 (nominal prices) is $11 billion higher and the 2025–26 forecast is $18 billion higher than than the same report.

The 2024–25 and 2025–26 forecast revisions have been largely driven by an upward revision to prices of iron ore and gold, and by the impact of a weaker than expected exchange rate against the US dollar (AUD/USD).

Write to Adam Orlando at Mining.com.au

Images: Australian Critical Minerals, Hawsons, Legacy Iron & Worldsteel
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Written By Adam Orlando
Mining.com.au Editor-in-Chief Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.