Australia extends iron ore price outlook above $100 per tonne to late 2021

Australia expects the iron ore price to stay above $100 per tonne until late 2021 - instead of mid-2021 as it said in a previous report - and decrease to $72 per tonne by the end of 2026.

This iron ore price outlook for the rest of 2021 is supported on strong demand from China and concerns about disrupted supply in Brazil, Australia’s Department of Industry, Science, Energy & Resources said in its resources and energy quarterly report released on Monday March 29.

On the iron ore supply side, Australia expects challenges from competitors such as South America and Africa who should increase iron ore output in the coming years, but global iron ore markets should remain tight with slow growth in both supply and demand over the next five years, Fastmarkets heard.

“China is investigating a number of possible iron ore mines in Africa, including large deposits in Gabon and Madagascar. However, the most notable prospect in Africa is the proposed Simandou iron ore mine, located in Guinea,” the report said.

China wants overseas iron ore mines with global influence and market competitiveness, with the iron ore supply from these mines expected to account for more than 20% of China’s iron ore imports by 2025, China’s Ministry of Industry & Information Technology said.

The report explains that the Simandou project’s output, which is close to 200 million tonnes per year of iron ore, or around 15%-20% of output currently produced in the Pilbara region of Western Australia, is not due until 2027 or 2028 and the project is subject to complex ownership arrangements.

“Brazilian iron ore output is expected to recover over the next 12-18 months and…Brazilian output [should] largely recover to pre-dam collapse levels by early 2022. A recovery in Brazilian supply is likely in the short term but a number of high-cost mines in Brazil and China are also expected to face closure or depletion over the next 10 years,” the report said.

Vale reiterated its commitment to reach its full 400-million-tonne capacity next year, with an additional 50 million tonnes functioning as ‘operational flexibility’, it said on March 1.

Australia does not expect the market structure to alter significantly, with Australia’s market share expected to hold up because a number of high-cost mines in Brazil and China should face closure or depletion over the next ten years.

Australia forecasts its iron ore exports to grow from 893 million tonnes in 2020-2021 to almost 1,100 million tonnes by 2025-2026, however, exports will remain sensitive to conditions in China, which remains Australia’s primary export market.

The report listed several projects in Australia to support the export outlook.

BHP should bring its South Flank project to full production – at around 80 million tonnes per year – in 2021, although this will largely act as a replacement for the Yandi mine, which is closing.

The Roper Bar iron ore mine in the Northern Territory – owned by Northern River Resources – recently restarted production in response to strong prices, sources said.

Nathan River – iron ore mine and producer based in Darwin, Australia – announced that the Roper Bar mine project is expected to ramp up to 1.5-2 million tpy of production from 2021.

Australia-based mining company NT Bullion’s new Frances Creek mine’s iron ore output is expected to soon reach 2 million tpy, which will last beyond the outlook period, it said.

Fortescue Metals Group’s newly developed Eliwana project is successfully ramping up with iron ore output expected to reach almost 30 million tpy from 2021.

Rio Tinto’s new Koodaideri mine has even more potential and is ramping up toward an output of around 40 million tpy from 2022.

“Other sources of new output include Magnetite Mines’ Razorback project in South Australia, Strike Resources’ Paulsens East project in Western Australia and Grange Resources’ proposed expansion to its mine in Tasmania,” the report said.

Fastmarkets’ index for iron ore 62% Fe fines, cfr Qingdao was at $167.88 per tonne on Monday March 29, up by $2.59 per tonne from $165.29 per tonne on January 4.

The index averaged $167.45 per tonne so far in the first quarter of 2021, up by 86.2% on the year and 25.6% higher quarter on quarter.