- Sentiment in the iron ore market continues to be dominated by concerns about supply disruptions in Brazil. Prices spiked above $100 per tonne after reports that there had been a recent surge of Covid-19 cases at Vale’s three mines in Itabira. Affected also by heavy rains earlier in the year, the country’s exports continued to slump in May, and total exports were down by 16% year-on-year.
- But even though the pandemic was raising fears about staff shortages and mine closures, which in turn were fueling the recent bullish price run, the Itabira mines were reported to be operating as normal.
- Also, in Brazil, the government is favorable to the mining industry and has supportive policies. Should the Covid-19 pandemic affect Brazil’s ability to export, Australian miners may be more than willing to make up for it, which would prevent any seaborne shortages.
- We believe the current iron ore price rally is not sustainable and any news of the spread of the pandemic being curbed would probably bring about a downward correction in prices. But because the benchmark has averaged higher than we expected in May, and we do not expect a price fall in the coming months, we have upwardly revised our forecast.
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- In the metallurgical coal market, prices have been driven more strongly, in our opinion, by the collapse in demand in non-Chinese markets such as India, where we estimate that coking coal consumption fell to just 1.8 million tonnes, down from an average of 4.7 million tonnes per month, in the first quarter of this year.
- Looking forward, a return to growth seems possible in China only if widespread plans to stimulate infrastructure developments can boost iron production, given that both manufacturing and general construction activity are struggling to maintain upward momentum.
- Without an infrastructure boost in China, the stronger demand conditions would be more likely to become evident overseas, notably in Japan and India following national lockdowns, and also in Europe, where mills were hoping that import quotas might be reduced in the second half of the year, supporting their own steel production and demand for coking coal.
- Some markets, such as Italy and the United States, have been increasing their coke usage rates in recent years, and though some of that has gone into stock, the low price environment today, coupled with the still-tight iron ore market, should see coke consumption rise when the crisis unravels.
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