Iron ore is in familiar territory right now.

Talked down by analysts who predict it is due for a dive, the headline Australian commodity has been defiant in 2022 so far.

Despite the column inches expended on the rise in crude oil prices so far this year — iron ore doesn’t hit you at the bowser — the bulk commodity mostly mined in WA’s north and its steelmaking cousin in metallurgical coal have been even more extraordinary.

Since hitting a low of US$87/t in November last year amid a big second half drop in Chinese steel production, iron ore has rebounded along with brighter conditions in the Chinese economy.

62% Fe iron ore fines are now fetching a touch under US$150/t (a rise of over 70% off year lows), and moves in the futures market following the end of the Chinese New Year public holiday could send prices higher still.

That reversal of fortunes has even lured a few smaller and higher cost miners who placed operations on ice during last year’s snap downturn to reemerge.

Just days after announcing plans to diversify into magnesium, GWR Group (ASX:GWR) declared its C4 iron ore mine near Wiluna, which exports lump and fines from the Port of Geraldton, was back up and running at full bore.

It has given a new lease on life too to the neighbouring JWD mine operated and majority owned by CuFe Ltd (ASX:CUF), which changed its name from Fe last year after adding copper to its portfolio.

While hedges and a pre-payment from Glencore got Tony Sage’s junior through the decline in prices last year, iron ore’s turn for the better is painting a brighter picture early this year.

The fundamentals are at once encouraging and discouraging for iron ore.

A MySteel survey reported lower steel production in China through the final third of January as the Lunar New Year holiday approached.

But steel prices are tipped to rise in February, giving hope iron ore prices will continue to be supported by positive steel factory margins.

Also helping matters for smaller producers are the struggles of the majors, particularly Brazil’s Vale, to ensure supply to the market amid challenges posed by Covid and wet weather, with the cyclone season in the Pilbara still to really kick off.

 

Chinese emission reduction goals a headwind for iron ore

Despite the blue sky, analysts at ratings and price reporting agency S&P Global have painted a bleaker picture for iron ore’s future.

They believe emissions reduction measures in China will have a long-term impact on iron ore prices.

That said, the faster than expected recovery in iron ore prices has driven S&P to up 2022 and 2023 price forecasts by US$10 on its last update in October to US$110/t and US$90/t respectively before settling into a long term level of US$80/t from 2024 onwards.

While the rise in prices has suggested market participants expect China will loosen pollution restrictions after the Winter Olympics and Paralympics, S&P analysts say these controls are unlikely to unwind.

Last year’s contraction in steel production, down 3% on a record 2020, was the first since 2016, but remained the second strongest one-year record at 1.033Bt.

For S&P, the fortunes of the steel sector and iron ore will remain closely tied to China’s climate ambitions.

“We believe the Chinese government is unlikely to loosen the control on steel production in 2022,” they said.

“Given that China’s goal of peak carbon emission by 2030, China’s crude steel production is likely to gradually fall.

“The world’s largest steel company, China Baowu Steel Group Corp. Ltd., targets peak carbon emission by 2023.

“We believe this signals a potential step-change and believe China’s decarbonization drive will keep steel production output flat year on year compared with 2020, as its government policy targets reducing steel sector carbon emissions.

“Chinese steelmakers will likely be required to further cut production to meet the nation’s carbon neutrality goal by 2060.”

S&P noted a number of high cost miners exporting iron ore at more than US$100/t remain profitable, but thinks rising production volumes from Vale will push them out of the market.

 

Iron ore producers preparing for greener future

With that in mind, decarbonisation has become a business imperative for the world’s top iron ore miners.

BHP (ASX:BHP), which ships up to 290Mtpa through Port Hedland each year, has announced a couple of initiatives this week in a bid to do, or at least be seen to be doing, something on its downstream emissions.

Those are the really crucial ones, because the vast bulk of the CO2 emissions BHP, Rio Tinto (ASX:RIO) and Fortescue Metals Group (ASX:FMG) report are actually those scope 3 emissions generated by their shippers and steelmaking customers.

Firstly, it has green-lit $10 million of funding to extend the mandate of the Centre for Ironmaking Materials Research at the University of Newcastle to focus on low carbon iron and steelmaking “using BHP’s iron ore and metallurgical coal”.

That could include hydrogen in the conventional blast furnace process and a number of other things that have a low carbon vibe.

The CIMR opened back in 2010 to undertake ironmaking research in conventional steel process, that is, using products in iron ore and met coal that BHP produced and remains wholly committed to.

BHP’s iron ore sales and marketing VP Rod Dukino, said the research program would complement existing partnerships with steel companies in China, Japan and Korea, the key plays in BHP’s net zero by 2050 pledge.

“Greenhouse gas emissions from steelmaking represent around 7-10 per cent of global total estimated emissions and the industry remains one of the most difficult sectors in the world to abate,” Dukino said. “Research and innovation have a critical role to play in accelerating the industry’s transition to a low carbon future.”

BHP meanwhile has also linked up with Shell, currently enjoying its best quarterly profit in 8 years on soaring energy prices, announcing the maiden voyage of its first LNG-fuelled Newcastlemax bulk carrier.

The MV Mt Tourmaline is one of five LNG carriers that will be chartered from Eastern Pacific Shipping for five years by BHP, which has awarded Shell the fuel contract.

After bunkering in Singapore the 209,000 deadweight tonne ship will head for Port Hedland.

Compared to oil heavy fuels traditionally used in shipping, BHP’s chief commercial officer Vandita Pant said the new LNG powered ships will lower greenhouse gas intensity by 30% a voyage.

BHP plans to reduce the emissions intensity of its shipping by 40% on its own charters by 2030.

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MktCap
NAE New Age Exploration 0.017 21% 70% 42% 31% $ 27,282,079.29
CKA Cokal Ltd 0.17 10% 13% 42% 121% $ 154,926,581.70
NCZ New Century Resource 2.02 -3% -9% -27% -25% $ 268,530,961.65
BCB Bowen Coal Limited 0.24 37% 37% 147% 382% $ 275,702,939.19
LNY Laneway Res Ltd 0.007 17% 0% 40% 8% $ 27,876,065.60
GRX Greenx Metals Ltd 0.22 -14% -6% -9% -21% $ 55,796,502.08
AKM Aspire Mining Ltd 0.084 4% -7% 18% -13% $ 41,626,232.77
PAK Pacific American Hld 0.018 6% 6% 13% -23% $ 8,123,915.83
AHQ Allegiance Coal Ltd 0.53 2% 8% -21% 22% $ 202,706,472.80
YAL Yancoal Aust Ltd 2.95 5% 2% 42% 19% $ 3,934,909,522.26
NHC New Hope Corporation 2.46 8% 7% 24% 89% $ 2,039,274,850.90
TIG Tigers Realm Coal 0.019 0% -14% 138% 90% $ 235,200,642.62
SMR Stanmore Resources 1.21 10% 13% 55% 64% $ 316,375,418.97
WHC Whitehaven Coal 2.91 9% 6% 34% 96% $ 2,943,036,061.20
BRL Bathurst Res Ltd. 0.775 -3% 4% 23% 63% $ 132,487,507.83
CRN Coronado Global Res 1.46 7% 12% 54% 25% $ 2,506,298,326.35
JAL Jameson Resources 0.075 0% 3% -25% -17% $ 26,115,248.40
TER Terracom Ltd 0.24 26% 26% 78% 60% $ 173,329,754.90
ATU Atrum Coal Ltd 0.025 -11% -22% -43% -89% $ 17,193,458.40
MCM Mc Mining Ltd 0.098 -1% 4% -18% -42% $ 15,133,116.39
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Brockman soars on port news

Brockman Mining (ASX:BCK) was the standout iron ore stock over the past week, after emerging as a big winner from the WA Government’s proposal to expand Port Hedland.

The world’s largest iron ore export hub has already exceeded its 495Mtpa planned capacity, outlined in its last long term plan in 2012.

It will go from a current iron ore export level of 523Mt to a capacity of as much as 660Mt — pending market conditions and billions of dollars of private investment — in the coming years.

MinRes (ASX:MIN) and Hancock Prospecting were two of the big winners after securing priority rights to jointly develop a new export terminal at the South West Creek berth at Port Hedland.

A lesser known beneficiary is Brockman, which has a JV with MinRes over the proposed 25Mtpa development of the Marillana and Opthalmia iron ore deposits, which would be opened up by the critical port development.

“Under the joint venture agreement between Brockman and MRL over the Marillana and Ophthalmia Projects MRL is to provide a logistics system to transport the ore from the mine to the ship for export from Port of Port Hedland,” BCK said last week.

“Brockman is delighted with this progress which clears the path to unlock the significant value contained within the high-quality ores at Marillana & Ophthalmia.”

MinRes last year committed to spending $105m on initial development works.

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.056 4% 4% 8% 155% 26,097,527.85
ADY Admiralty Resources. 0.016 14% 23% -11% 14% 19,553,687.30
AKO Akora Resources 0.38 27% 58% 58% -5% 20,413,947.84
BCK Brockman Mining Ltd 0.064 36% 28% 68% 83% 593,870,856.38
BHP BHP Group Limited 49.15 6% 12% -6% 12% 239,903,495,974.10
CIA Champion Iron Ltd 6.99 8% 21% 5% 37% 3,419,630,163.00
CZR CZR Resources Ltd 0.008 14% 7% -24% -33% 26,147,424.58
DRE Drednought Resources 0.042 17% 2% 2% 83% 119,224,709.14
EFE Eastern Resources 0.061 9% 0% 281% 554% 57,084,143.69
CUF Cufe Ltd 0.042 14% -5% -46% -21% 37,844,494.60
FEX Fenix Resources Ltd 0.265 13% -9% -22% 15% 125,553,480.00
FMG Fortescue Metals Grp 22.23 12% 9% -4% -4% 66,290,114,684.54
FMS Flinders Mines Ltd 0.52 0% -10% -43% -60% 87,801,260.04
GEN Genmin 0.22 5% -6% 16% 0% 63,514,766.25
GRR Grange Resources. 0.87 13% 7% 37% 187% 1,006,884,667.26
GWR GWR Group Ltd 0.17 -6% -11% -41% -49% 53,606,831.34
HAV Havilah Resources 0.195 11% 15% -5% -7% 57,314,250.05
HAW Hawthorn Resources 0.09 0% -10% 96% -10% 29,682,889.56
HIO Hawsons Iron Ltd 0.225 7% 13% 41% 487% 153,736,384.25
IRD Iron Road Ltd 0.19 0% -3% -21% -44% 147,168,992.03
JNO Juno 0.125 9% 9% -36% 0% 16,278,960.12
LCY Legacy Iron Ore 0.02 0% -17% 25% -31% 121,729,697.78
MAG Magmatic Resrce Ltd 0.091 -3% -13% -30% -41% 22,903,811.82
MDX Mindax Limited 0.04 8% 8% -13% 1233% 76,197,431.00
MGT Magnetite Mines 0.039 11% 34% 3% 70% 116,762,634.60
MGU Magnum Mining & Exp 0.079 0% -9% -37% 13% 36,291,578.72
MGX Mount Gibson Iron 0.455 8% 7% -42% -46% 538,702,774.69
MIN Mineral Resources. 57.88 4% -2% -2% 66% 11,140,273,946.89
MIO Macarthur Minerals 0.345 10% 1% -43% -49% 53,702,109.69
PFE Panteraminerals 0.21 11% 5% -42% 0% 8,570,000.00
PLG Pearlgullironlimited 0.065 -3% -11% 0% 0% 3,403,943.10
RHI Red Hill Iron 2.96 2% -11% -11% 907% 182,548,506.14
RIO Rio Tinto Limited 117.18 5% 13% -10% 3% 42,574,787,583.66
RLC Reedy Lagoon Corp. 0.032 -3% -11% 78% 78% 17,531,431.36
SHH Shree Minerals Ltd 0.024 118% 167% 85% 41% 25,517,685.41
SRK Strike Resources 0.125 0% 0% -50% -44% 35,100,000.00
SRN Surefire Rescs NL 0.014 27% 27% -7% -42% 14,356,035.32
TI1 Tombador Iron 0.044 -4% 26% -35% -52% 45,835,963.86
TLM Talisman Mining 0.175 0% -3% -17% 82% 30,977,017.01
VMS Venture Minerals 0.044 13% 0% -58% -25% 71,808,176.46
EQN Equinoxresources 0.22 -4% 10% 0% 0% 9,450,000.21
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Coking coal hits new all time high

Met coal prices are surging, topping US$445/t amid tight supplies for the crucial steelmaking commodity globally.

Australian coking coal prices soared to record levels of US$409/t in September last year, more than US$100/t beyond coking coal prices seen when extreme weather hit Queensland in 2017 and 2011.

Commbank analyst Vivek Dhar said wet weather and Covid has caused supply shortages out of Canada, the USA and most importantly Australia.

“Winter storms in the Appalachians also adversely impacted US coking coal exports (~13% of traded coking coal supply). Finally, and most critically, Australian coking coal supply was negatively impacted by La Nina related wet weather and COVID‑19 related labour constraints,” he said in a note yesterday.

“That helps explain BHP’s reduced coking coal guidance in 2021‑22. The company now anticipates coking coal production guidance (100% basis) of 68‑72Mt, a downgrade from previous guidance of 70‑78Mt. That’s roughly equivalent to a ~1.3% reduction in traded coking coal supply.”

Despite steel demand rising outside China, where Australian coking coal is currently (unofficially) banned, Dhar says Indian, Korean and Japanese coal demand, collectively 48% of the seaborne trade, could plateau in 2022.

“Coking coal imports from all three nations in aggregate are expected to plateau from 2021 to 2022,” he said. “With an anticipated recovery in traded coking coal supply from Australia and Mongolia this year, coking coal prices should moderate in coming months. A sharp correction may come even earlier than that if supply‑side disruptions ease more quickly.”

S&P expects prices for met coal and thermal coal (currently 2.5 times the US$85/t energy coal was fetching 12 months ago) to cool, but has also been forced to ratchet up its near term forecasts.

Its coal price assumptions are up 40% from US$160/t to US$250/t for coking coal in 2022, and US$140/t to US$190/t in 2023.

S&P’s 2024 prediction has been adjusted up from US$140/t to US$150/t.

“The seaborne met coal price has stayed strong despite a temporary retreat to US$300 per ton when China’s crude steel production fell to a four-year low of 69 million tons (Mt) in November,” S&P analysts said.

“China’s steel output in December rebounded to 86Mt, supporting met coal prices, while other major steel producing countries in the region, including India, Japan, and Korea, increased their steel output late in November to further offset the decline in China.

“The impact of weather and restocking demand are also supporting met coal prices.

“Queensland has been experiencing wetter-than-average weather due to a La Nina event, spurring supply disruptions and logistics issues. Restocking demand from Indian, Japanese, and Korean steel mills is robust as their inventory remains low, partly because of tight supplies, and Chinese steel mills have been restocking ahead of the Winter Olympics and the Lunar Near Year.”

Thermal coal prices could be supported if Chinese production declines and Russia-Ukraine tensions lead to sanctions against Russia, a major exporter of energy products to Europe.

S&P has similarly adjusted its thermal coal forecasts up from US$80/t to US$120/t in 2023, falling to US$90/t in 2023 and US$70 in 2024.

They think thermal coal prices will moderate towards the 10-year average as economic growth and supply rebalance, and the world gets more serious on climate commitments.

“New commitments during the 2021 U.N. Climate Change Conference, more commonly referred to as COP26, to accelerate the transition from unabated coal power generation, place additional pressure on coal and more countries in Asia-Pacific have joined the net zero race with more aggressive 2030 emission targets,” they said.

“As such, our long-term price reflects our more bearish view on thermal coal as countries reduce carbon intensity.”

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MktCap
NAE New Age Exploration 0.017 21% 70% 42% 31% $ 27,282,079.29
CKA Cokal Ltd 0.17 10% 13% 42% 121% $ 154,926,581.70
NCZ New Century Resource 2.02 -3% -9% -27% -25% $ 268,530,961.65
BCB Bowen Coal Limited 0.24 37% 37% 147% 382% $ 275,702,939.19
LNY Laneway Res Ltd 0.007 17% 0% 40% 8% $ 27,876,065.60
GRX Greenx Metals Ltd 0.22 -14% -6% -9% -21% $ 55,796,502.08
AKM Aspire Mining Ltd 0.084 4% -7% 18% -13% $ 41,626,232.77
PAK Pacific American Hld 0.018 6% 6% 13% -23% $ 8,123,915.83
AHQ Allegiance Coal Ltd 0.53 2% 8% -21% 22% $ 202,706,472.80
YAL Yancoal Aust Ltd 2.95 5% 2% 42% 19% $ 3,934,909,522.26
NHC New Hope Corporation 2.46 8% 7% 24% 89% $ 2,039,274,850.90
TIG Tigers Realm Coal 0.019 0% -14% 138% 90% $ 235,200,642.62
SMR Stanmore Resources 1.21 10% 13% 55% 64% $ 316,375,418.97
WHC Whitehaven Coal 2.91 9% 6% 34% 96% $ 2,943,036,061.20
BRL Bathurst Res Ltd. 0.775 -3% 4% 23% 63% $ 132,487,507.83
CRN Coronado Global Res 1.46 7% 12% 54% 25% $ 2,506,298,326.35
JAL Jameson Resources 0.075 0% 3% -25% -17% $ 26,115,248.40
TER Terracom Ltd 0.24 26% 26% 78% 60% $ 173,329,754.90
ATU Atrum Coal Ltd 0.025 -11% -22% -43% -89% $ 17,193,458.40
MCM Mc Mining Ltd 0.098 -1% 4% -18% -42% $ 15,133,116.39
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