In 2021, the price of iron ore took a wild journey.
In May, prices soared to a high of $237 per tonne before plummeting to around $85 in November on China’s vow to cut steel production. The iron ore price surge was considered to be over in November. However, in recent weeks, the metal has risen by 50%. Analysts predict that the volatility will continue till 2022. The top iron ore stories for 2021 are listed below.
Chinese steel limits to control carbon emissions set the tone for the metal’s performance throughout the year since iron ore is a barometer for the Chinese economy.
In March, the Tangshan authorities issued a second-level pollution notice, encouraging heavy industrial businesses, including steelmakers and coking plants, to reduce production.
The action tempered market expectations for a post-Lunar New Year surge in iron ore demand in the world’s largest steelmaker.
It concerns Chinese property developers’ debt troubles, which account for nearly a quarter of domestic steel demand, led to the downward pressure on iron ore and steel prices.
Evergrande, a deeply indebted property behemoth, refused to sell assets to raise money and missed a September 23 deadline on an $83.5 million interest payment due on certain of its dollar-denominated notes, despite rumors of financial issues.
China’s iron ore price fell to its lowest level in nearly three years as concerns about the real estate sector grew.
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#2 Oversupply has returned
Improved production development in Brazil and Australia has started to alleviate the seaborne market’s supply constraints.
Vale now has a production capacity of 330 million tonnes of iron ore. The company’s iron ore production in Q1 2021 was 68 million tonnes, up 14.2% from Q1 2020, while Q2 2021 production was 76 million tonnes, up 12% from Q2 2020.
Meanwhile, Fortescue Australia surpassed its full-year shipment forecast in FY2021, shipping a total of 182 million tonnes, and established shipment guidance for FY2022 at 180-185 million tonnes.
BHP also reported iron ore production of 253.5 million tonnes in FY2021, which is towards the top of its forecast range.
“Among the major producers, only Rio Tinto presented a bleak picture in its half-yearly results, warning that exports are likely to come in at the low end of its 325-340 million tonnes projection for 2021 at best, necessitating a large increase in output over the next five months.”
While major producers’ outlooks for 2021 were favorable, one gem remained undiscovered.
The massive Simandou deposit in Guinea, which contains two billion tonnes of iron ore with some of the highest grades in the world, has remained the source of contention between Vale and Israeli billionaire Beny Steinmetz.
In December, Steinmetz was detained in Greece after a Swiss court convicted him guilty of bribery relating to minerals rights in January. The concession, when fully operational, could export up to 100 million tonnes per year, making it the world’s fifth-largest producer behind Fortescue Metals and BHP.
Iron ore is facing strong headwinds in the coming year.
China is accelerating its efforts to reduce carbon emissions ahead of the 2022 Winter Olympics in Beijing. Still, steel output is set to fall for the second year in a row, and the country’s debt-ridden housing industry is dragging on steel consumption and overall GDP.
“Iron ore demand will fall in a broad, progressive manner,” according to CITIC Futures Co. analyst Zeng Ning.
According to UBS Group AG, iron ore is expected to average $85 a tonne in 2022, and $96, according to Citigroup. By the end of next year, Capital Economics anticipates a price of $70.
“Given the decrease in iron ore prices in H2 21, we are neutral on the subject in the near term.” In a report, it was said, “We forecast them sliding lower later in 2022, averaging $90 tonne following year.”
Potential fiscal stimulus in China, greater relaxing of monetary policy, and additional support for the property industry are among the bright spots. At the same time, steel output could rebound once the Olympics are over.