Vale’s Recovery to Be the Biggest Swing Factor for Iron Ore in 2020

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A decent recovery is expected in the seaborne supply of iron ore in 2020, predominantly driven by the recovery of shipments from the Brazilian mining giant Vale.

Energy research consultancy Wood Mackenzie forecasts an accelerated recovery in shipments from Q1-20, resulting in a 30 million tonnes (Mt) rise in seaborne exports from Vale in the calendar year 2020.

“In other words, half of last year’s losses will be recovered in just one year,” research director Paul Gray said.

This would be good news for Capesize vessels, as they were hit the most following the collapse of the upstream dam in Brumadinho in 2019, which cut Vale’s iron ore production from Minas Gerais in Brazil. Furthermore, the ton-mile demand is expected to feel a boost from the recovery.

Drewry’s estimates from last year said that around 35-40 Capesize vessels would lose employment as a result of the incident.

Looking further ahead, Vale’s previous peak production (385 Mt in 2018) could be achieved as soon as 2021, pending extreme weather conditions and consequential supply chain disruptions.

According to Wood Mackenzie, this is to the credit of the rapid repair and recovery program underway at the company’s key hubs in Minas Gerais.

The consultancy also predicts a modest recovery in the seaborne supply of iron ore in China.

“Chinese iron ore production increased by approximately 30 Mt in 2019 in response to strong domestic demand and tight seaborne supply. In 2020, we forecast a decent recovery in seaborne supply,” Wood Mackenzie added.

As indicated, Chinese concentrate production is expected to remain broadly stable in 2020 with no significant displacement occurring until 2021.

“There is more upside than downside risk to our Chinese iron ore production forecast for 2020. In H2-19 we saw how resilient Chinese domestic production (and price) has become due to falling seaborne prices. This trend will likely persist through 2020 as further productivity and efficiency gains are realised,” Senior manager Ming He said.

The downside risk to production from increasingly stringent safety and environmental protection policies has also diminished now that mine operators have upgraded equipment and improved the technical efficiency of beneficiation.

Finally, Indian imports could rise to 12 Mt in 2020, the energy consultancy believes. To reduce reliance on expensive imports, either exports need to fall by a further 10 Mt or domestic production needs to rise by the equivalent tonnage.

“A key point to watch in 2020 is India’s ability and willingness to boost domestic production in response to stronger demand and wide spreads between domestic and seaborne pricing. Look out for higher supply from NMDC (additional 3 Mt capacity at Kumaraswamy mines), an additional 3-4 Mt from JSW, plus SAIL’s enhanced ability to fill any shortages now that the government-owned producer is permitted to sell 25% of production in the open market,” the consultancy’s principal analyst Sandeep Kalia commented.

The mine lease auction process for 18 working mines (with capacity to produce approximately 80 million tonnes per year (Mtpy)) is scheduled for completion by end-February. The results of which will provide a good indication of potential production shortfalls.

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