26th November 2021
Like many other commodities this year, the iron ore price has been on an absolute rollercoaster. However, unlike metals such as copper and lithium, the medium-long term outlook for the red stuff is bleak. The causes, of course, are concentrated in China, because that country not only processes the majority of the world’s ore, but is also a huge driver of demand for finished steel products. I’ve been avoiding writing about the iron ore price for a while now because it has seemed that any news would become out of date in the time it takes to send an email, but I can’t ignore it any longer. So let’s take a look at the most recent events.
Firstly, check out the graph above. The price of iron ore was riding high as recently as the middle of this year, thanks in large part to pandemic recovery driving steel production in China as it responded to surging demand across almost all sectors. But since then it has plummeted, driven by several factors. The first of these is extreme wobbles in the Chinese construction industry, centred on the debt crisis faced by giant Evergrande, which I wrote about in September. Said crisis has not yet been resolved, but for a look at how the Chinese government has dealt with shaky companies in the past, you can check out this interesting overview. All things considered, the CCP will more than likely step in with Evergrande, even it’s behind the scenes, but I said the same thing in that September piece and the issue is still rumbling on. There’s some good news, though, which is that the company resumed construction on 63 projects in the Pearl River Delta early last week, and the tiny uptick in the iron ore price you can see at the very end of the graph above was at least partly a sentiment-driven response to that news.
Another factor that’s affecting steel production, and therefore the iron ore price, is power concerns in China. Mao-era coal coupons are back in some parts of the country as a potentially brutal La Nina winter looms. China’s power woes were partly set off by its unofficial ban on the import of Australian coal, the stupidity of which debacle I discussed here, which cut off input from its previous largest supplier. The power crisis is affecting all of Eurasia as economic activity surged earlier this year in response to pandemic recovery, and Russia is using its hydrocarbon muscle to leverage that on both its eastern and western fronts. Nearby suppliers of fossil fuels to China, like Turkmenistan and Kazakhstan, are having trouble scaling up supply to the economic powerhouse due to insufficient infrastructure.
On top of all this, there’s the climate. Chinese President Xi Jinping pledged in October to make China carbon neutral by 2060, and now policy makers are under severe pressure to meet ambitious emissions targets in the new 2021-2025 five year plan. Experts think that China must cut coal’s share of energy generation from 58% to 50% by 2025 to have any hope of achieving its goals, and both wind and solar power output, as well as storage capacities, must rise eleven-fold by 2050. Local governments have been scrambling to get in line with this new directive, curbing energy-hungry industrial activity like steel-making across the country. Add to this the national desire for clear, pollution-free skies for the upcoming Winter Olympics, and it’s practically a miracle any steel mills are still running.
So with heat leaving the construction market in China and a power crisis driven by multiple factors, it’s little surprise that the Chinese appetite for iron ore is close to rock bottom. With all these issues facing production there, iron ore producers are looking to market their products elsewhere. Brazilian miner Vale, the world’s second-largest iron ore miner after Rio Tinto, is looking to its own backyard as a potential growth market. In a very weird statement, Vale head of ferrous Marcello Spinelli said to Latin American steelmakers at an industry event that “The time has come for us to at least invite you to go to the movies and then maybe date and get married.” The message is that Vale’s love affair with China may be on the rocks, and this is driven not only by downturns in Chinese production, but once again by decarbonisation goals. Vale is in talks with mills around the world to clean up the steel-making process, and has so far signed eight memorandums of understanding to that effect. Spinelli also noted Latin America’s efforts to boost renewables use in steel production, making the region a good platform for carbon offsets.
Just to cap off this overview, it can’t go unsaid that the supply side of the iron ore market is also driving prices down. A Fitch Solutions report published earlier this month noted improving production growth in both Australia and Brazil, despite Vale still recovering from the Brumadinho dam collapse. All in all, the Fitch conclusion that iron ore prices are on a multi-year downtrend seems unpleasantly believable.
Around the Traps
Huge news for Conquest Resources (TSXv:CQR) this week with their announcement of the purchase of the Nipigon Rift property in Ontario, where it will be looking for high-grade uranium deposits and Ni-Cu-PGEs. The company sees similarities between the Lake Nipigon Basin and the uranium-producing Athabasca Basin, as well as mafic and ultramafic intrusives that are prospective for Ni-Cu-PGEs. This property is an excellent addition to the company’s stable of Ontario projects, including the exciting multi-element Belfast – Teck Mag property where exploration is underway.
Have a look at this fabulous video we produced for Moneta Gold (TSX:ME, OTCQX:MEAUF), giving a Q4 update fresh from the Timmins gold camp! We’re keeping a close eye on the good work done by this company, who is rapidly advancing their flagship Tower Gold project.
A nice injection of cash for Goldplay Mining (TSXv:AUC, OTCQB:AUCCF, FRA:9FY), who have arranged a flow-through private placement for $610,000 with Cordillera Minerals Group and Marquest Asset Management. The funds are specifically ear-marked for use at the company’s British Columbian properties, where the Scottie West Cu-Ag project features fresh exploration ground revealed by retreating glaciers.
In the Spotlight
Spotlight will be at Mines and Money London 2021, and we’ll be hosting SpotNight, an evening of friendly networking between mining professionals and an all-round fun shindig. Have you been longing for some good mining chat while cooped up during the pandemic? Then come and join us, plus senior figures from our wonderful sponsors Warrior Gold (TSXv:WAR) and Enduro Metals (TSXv:ENDR), from 17:30 on the 1st of December, close to the conference venue! Prior registration is required due to corona regulations, so click here to secure your spot.
MINEX Eurasia 2021 is happening on the 30th of November, and Spotlight are official media partners, so register to get your fix of mining updates and networking from Russia, Central Asia and Mongolia now. The best part is, online viewing is free!
- Find out all about mining in Slovakia! Expert contributor Aaron has done a great write-up of the geology around projects owned by Prospech Mining (ASX:PRS) in this appealing jurisdiction.
- Maybe Mexico is more your style? For a seriously in-depth look at its geopolitical environment and major mining projects, check out this piece from Luke Holland. Part two, covering junior activity, will be out soon!
- Have you heard about the Prospector Portal, a new search engine for the mining industry? Our interview expert Alex sat down with its founder Emily King to hear about her extraordinary background and innovations.
- What’s happening in Newfoundland? Callum Clark has insights into some of the most interesting juniors in this region with an Exploration Highlight.
- For an overview of the backstabbing going on in South African PGEs, check out my monthly African Review here. They should make reality shows out of this stuff.
That’s it for this week folks, as the weather becomes more bleak here in Germany I wish you all a weekend of warm drinks and relaxation!
- Jane Lockwood