nCoV-19 coronavirus, seaborne supply uncertainty to drive iron ore price volatility in 2020 – BHP

The outbreak of the novel coronavirus (2019-nCoV), intra-year demand volatility and seaborne supply uncertainty are likely to contribute to iron ore price volatility in the coming year, Australia miner BHP said.

“If Covid-19 is effectively and demonstrably contained within the March quarter, we expect that an accelerated run-rate in the construction and manufacturing sectors for the remainder of the year can make up for the loss of activity at the outset of the year,” BHP said in its outlook report.

“If the outbreak is not contained within that time frame, or it re-emerges after a period of apparent containment, then that would be damaging for both real activity and market sentiment,” it added.

The miner expects to see “higher-than-normal” inter-year demand volatility as well due to the virus outbreak within top iron ore consumer China.

“The sprint required to meet the annual plans of public and private entities in China in nine months rather than twelve will amplify the normal seasonal swings in steel end-use, potentially creating a shift from ‘famine to feast’ for the iron ore market,” BHP said.

Fastmarkets’ 62% Fe iron ore index stood at $90 per tonne on Wednesday February 19, down by 0.2% from the previous day but up 11.9% from the level on Monday February 3, the first working day for Chinese markets after the extended Lunar New Year holiday.

Fastmarkets’ 65% Fe iron ore index was calculated at $103.80 per tonne on February 19, down 0.4% from the previous day but up 8.9% from the level on February 3.

BHP added that the normalization of seaborne iron ore supply – following significant disruptions last year due to the impact on Brazilian exports after Vale suspended operations – could be a multi-year event.

Fastmarkets 62% Fe iron ore index month-to-date index average stands at $85.97 per tonne cfr China, down 0.8% from the February 2019 average, the month in which Brazilian miner Vale announced many mining suspensions following the collapse of a tailings dam.

“The inevitable ups and downs of the path back to a stable and predictable Brazilian export performance can be reasonably expected to generate volatility in pricing,” the miner said.

In the medium to long-term, BHP expects demand for high-quality iron ore fines and direct-charge materials such as lump to remain supported due to the steel supply reforms in China, the expected migration of steel capacity to coastal regions, the build-up of larger furnaces and more stringent environmental policies of the country.