Global iron ore production growth
will accelerate in the coming years, bringing an end to the stagnation that has
persisted since iron ore prices hit a decade-low average of $55 a tonne in
2015, market analyst Fitch Solutions asserts in its latest
Continued, albeit slower, growth
in Australia, faster growth in Brazil and stabilisation in Mainland China’s ore
output will be the main drivers of growth, Fitch says. China
will invest heavily in overseas mines to improve security of iron ore import
supply, and Guinea will be an important beneficiary of this trend via the
global mine output growth to average 2.7% over 2022-2026 compared to -1.3% over
the previous five years. This would lift annual production by 361.7mn tonnes in
2026 compared to 2022 levels, roughly the equivalent of Russia, India, and
South Africa’s combined 2022 output.
Supply growth will be primarily
driven by Brazil and Australia, while Brazilian miner Vale has aggressive
expansion plans, Fitch notes, adding that miners in Australia
including BHP, Rio Tinto and Fortescue will reinvest
currently buoyant profits into additional production.
In Mainland China, iron ore
production will rise once again in the next three to four years as the country
works to increase its self-sufficiency and reduce Australian imports, having
declined significantly over recent years, the analyst predicts.
As China’s miners operate at the
higher end of the iron ore cost curve and domestic ore grades will continue to
decline, Fitch expects Chinese firms to prioritise investment
in overseas iron ore mines, such as the giant Simandou deposit in Guinea.
iron ore production in Australia to grow at an annual average of just 0.4% over
2022-2026. The significant slowdown compared to the previous five years comes
from the launch of the limited new sources of supply from new projects
available. This would lift annual output by just 19.3 million tonnes compared
in 2026 compared to 2022 levels.
The analyst believes Australia’s
seating at the lowest-end of the global iron ore cost curve will provide a
healthy buffer against falling prices in the coming years despite the slowdown.
On average, the cost of producing iron ore in Australia is $30/ tonne, compared
with $40-50/tonne in West Africa and $90/tonne in China, the analyst notes.
Brazil’s iron ore production
growth will rebound in the coming years following contraction and stagnation
over 2018-2020, Fitch predicts, noting that low operating
costs, a solid project pipeline and Brazil’s high-quality iron ore increasingly
favoured by Chinese steel producers will all contribute to higher output. Fitch
forecast Brazil’s iron ore production to increase at annual average rate of
2.6% from 2022-2026 from 409.6mnt this year to 473.5mnt in 2026.
The Brumadinho dam collapse sparked
a flurry of investigations into Vale’s operations, leading to executive
removals, idling operations, and fines on the horizon. The disaster triggered
an initiative by Vale to decommission its remaining upstream tailings dams over
the next three years, effectively cutting off 40mnt of iron ore per annum.
Since the announcement, multiple operations have been idled, causing further
The Brucutu mine (30mtpa) was
idled for six weeks, allowed to reopen, then idled again days later following
another court ruling, then finally reopened in June. Fitch expects
to see continued regulatory scrutiny over Vale and the iron ore sector as the
government grapples with the deadliest environmental disaster in the nation’s
In December 2020, The Samarco
joint venture, owned by BHP and Vale, restarted. Production is initially aimed
at 26% of its 30.5mnt capacity with a 60% nameplate utilisation target set for
Production growth will stagnate
over the longer term and Fitch forecasts production to peak
around mid-decade just shy of 1 billion tonnes. This production slowdown will
be due to mothballing of mines by junior miners and a pullback in capital
expenditure by larger firms as iron ore prices decline, says Fitch.
Majors continue to decrease costs
and increase production in the longer term focusing on higher quality ores as
much as possible to improve margins and supply ‘green’ steel production.