Iron Ore: Project delays in Brazil and reduced Indian exports to sustain deficits to 2015

Iron Ore: Project delays in Brazil and reduced Indian exports to sustain deficits to 2015

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While softer demand conditions in Europe and a slower rate of steel production growth have reduced the forecast call on seaborne iron ore by a net 15Mt in 2012, supply developments have continued to be supportive of deficit markets. Indeed, as a result of recent production and project developments we have increased the size of our forecast deficits in 2012-14 and we now do not expect a return to surplus market conditions in the seaborne market before 2015.
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One of the major project delays announced in 2011 was to Vale’s 90Mtpy Sierra Sul project in the Carajas region of northern Brazil. The US$8bn greenfield mining, rail and port expansion project was originally scheduled to begin production in late 2014, but has now been delayed until 2016 because of delays in the licensing process.
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The other major supply development has been the accelerated decline in Indian exports originally because of the impact of state government campaigns to reduce the environmental and financial impact of illegal mining in Karnataka, Goa and Orissa states. Moreover, the campaign to conserve Indian output for the benefit of India’s expanding domestic steel industry has gathered pace, resulting in an increased in the export duties on fine and lump ore from 20% to 30% effective 30 December 2011. As a result, we expect Indian exports to decline to 68Mt in 2012, from 79Mt in 2011 and 103Mt in 2010.

STEEL: Stronger Chinese imports, supply constraints to keep prices high in 2012

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The downgrade to our global finished steel demand and crude steel production numbers in 2012 discussed in the steel section of this report, has reduced our estimates for demand for seaborne iron ore by 1.1% to 1,161Mt, compared with 1,174Mt previously.
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While small in aggregate, the detail of the forecast change is instructive. The level of forecast demand for seaborne iron ore in Western Europe is now 101Mt, compared with 128Mt previously, a 27.6% decline. However, demand for Chinese seaborne imports of iron ore in 2012 is forecast at 756Mt, compared with 735Mt previously. These developments reflect the impact of higher mark-to-market levels of imports in 2011 partially offset by our lower steel production forecasts.
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In terms of iron ore pricing, we have lowered our forecast for 62% cfr fines, delivery point North China, by 2.3% to reflect the impact of anticipated weaker 1H12 market conditions resulting from a slow recovery in China’s steel output from last year’s aggressive de-stocking. The back-ending of price strength into 2H12 reflects the anticipated benefits of further reductions in Indian exports, the recovery in Chinese operating rates, and the limited capacity expansions anticipated in the seaborne market in 2012.

Iron Ore GLOBAL SUPPLY AND DEMAND