Iron ore prices continue on a solid footing, but could there be a slip-up be on the cards?
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Iron ore remains one of the bright spots for the resources industry, with prices remaining well above the $US80 ($130.58) per tonne mark for most of this year despite the initial impact of the COVID-19 pandemic on China.
And it has been tipped to remain well supported in the current quarter with about 38 per cent of the respondents to S&P Global Platts’ latest outlook survey expecting iron ore prices to remain in the current $US80 to $US90 range, while 28 per cent expected it to fall to the $US70 to $US80 band.
While 60 per cent of Chinese steel market participants do not expect to see activity recovering fully until at least the end of May, more than three quarters of them believed that steel inventories would fall in the June quarter.
Most survey participants also expected the Chinese government to use infrastructure investment as the key measure to support the economy.
In line with this belief, Australia’s latest Resources and Energy Quarterly (REQ) estimated that iron ore would be the first commodity to exceed $100bn in export earnings in a single year – thanks in no small part to the favourable US to Australian dollar exchange rates.
However, the longer-term forecast for iron ore may be a little less promising, with Wood Mackenzie flagging that prices should lean towards $US70 per tonne over the course of the year.
“If demand turns out to be weaker than forecast and the iron ore market moves into acute oversupply, prices could fall as low as US$50/tonne and we view this as the lower bound for prices,” Woodmac research director Paul Gray said.
And it is clear that sure-footed iron ore producer Mineral Resources (ASX:MIN) believes that the future of the steelmaking commodity remains bright.
The company has moved to increase its iron ore footprint in the Pilbara by purchasing the Buckland project from BCI Minerals (ASX:BCI) for $20m.
Both companies will also optimise their existing Iron Valley agreement, with BCI participating in the capital investment required to extend the mine life through a partial rebate of Mineral Resources’ payments to BCI.
Meanwhile, Carpentaria Resources (ASX:CAP) has negotiated a little more time to secure funding for the Hawsons iron project bankable feasibility study (BFS).
The company reached an agreement with Mitsui to extend the term of its existing offtake option for four months to July 31, 2020. Both companies also plan to negotiate commercial terms to extend the option beyond that date.
Under the original 2018 agreement, Mitsui will contribute $4.5m towards the cost of the BFS in return for an option over 2 million tonnes of the Hawsons project’s planned 10-million-tonne-per-annum output.
Offtake will be secured by Mitsui exercising its option with a $US60m contribution to the debt funding package for the construction of the project.