Global infrastructure cash splash drives iron ore to new heights
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Special Report: Major economies like China and the US have launched an infrastructure cash splash that has pushed demand for iron ore up and the price to a one-year high.
The iron ore price recently hit $US112 ($157) a tonne, and it continues to trade well above $US100 a tonne.
China only recently announced it would inject more cash into construction and infrastructure as it works to try and lift its economy following the coronavirus pandemic.
Over in the US, irrespective of who wins the presidential election this year, infrastructure is a top priority for the government.
Current President Donald Trump has promised a hefty $US1.5 trillion to upgrade roads, bridges, public transit and rail.
Presidential candidate Joe Biden, meanwhile, has revealed a proposed $US2 trillion climate plan that will focus on installing more renewable energy projects and rebuilding infrastructure.
And other economies are likely to also look to increase spending on major infrastructure projects as a means of revival following the pandemic.
These stimulus plans will obviously drive steel demand, which will in turn push up iron ore demand.
“More than half of steel demand globally is used in construction of buildings and infrastructure,” Mark Eames, director of ASX-listed Magnetite Mines (ASX:MGT), said.
“Roads, bridges, tunnels and pipelines all require lots of steel – wherever you see a concrete structure, it is the steel inside that provides the tensile strength.
“And incremental steel demand will mainly come from blast furnace iron and steel as recycling levels of scrap steel collection doesn’t change quickly.”
And as populations continue to grow, more infrastructure will be needed. The United Nations predicts the global population will rise by 2 billion to 9.7 billion by 2050.
At the same time Brazil has been hit hard by the pandemic and iron ore heavyweights like Vale have had to shut down mines until the South American nation can get the virus under control.
Brazil is one of the largest iron ore exporters in the world and the dialling back of production from several mines in the country is expected to leave a significant hole in global iron ore supply.
Meanwhile, crude steel production in China continues to climb.
Paul Bartholomew, head of metals news and insight, Asia-Pacific for S&P Global Platts, believes Chinese crude steel production could still recover from any coronavirus impact and grow by 1-2 per cent to reach 1 billion tonnes this year.
China in the last three years has increased its steel production by 20 per cent. Last year, the Asian powerhouse notched an all-time record, producing nearly 1 billion tonnes of crude steel.
In May China produced 92.3 million tonnes of crude steel, an increase of 4.2 per cent compared to May 2019, according to the World Steel Association.
The association says the recovery of steel demand will be more visible in the second half of 2020 and will be “driven by construction, especially infrastructure investment, as the government has put forward several new infrastructure initiatives”.
“We expect Chinese steel demand to increase by 1 per cent in 2020. We also expect that the benefit from infrastructure projects initiated in 2020 will carry over and support steel demand in 2021,” the World Steel Association noted.
Magnetite Mines’ Eames agrees China’s steel market has been pretty resilient.
“It’s actually kept going pretty steadily through the coronavirus outbreak, interestingly enough, and as a result iron ore prices have stayed quite high,” he said.
Magnetite Mines is advancing the 4-billion-tonne Razorback magnetite project in South Australia, where iron ore has been mined longer than any other Aussie state.
There are two main types of iron ores – hematite and magnetite. Haematite is higher grade in the ground, while magnetite deposits are large and quite low grade – but produce very high-grade products.
With the depleting direct shipping ore — the stuff that you can just dig up and ship — in the Pilbara, end users like steelmakers in China are increasingly demanding more processed ores like magnetite.
About a third of the world’s steel is made from processed or magnetite-rich ores and globally there’s a bunch of big successful mines that have been producing for years.
Razorback is what Magnetite Mines dubs a “globally unique opportunity” and that’s because it has the potential to produce the highest grade of any iron ore operation in Australia as well as globally.
Lab tests undertaken by the company have already demonstrated it can produce grades of nearly 70 per cent from the Razorback project.
In June, Magnetite Mines started work on the all-important pre-feasibility study (PFS) after completing an oversubscribed $1.28m rights issue.
The company also reached agreement on the material terms of a $20m farm-in offer with Braemar Mining Developments (BMD), which places it in prime position to forge ahead with the PFS.
This article was developed in collaboration with Magnetite Mines, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.