Global iron ore production set for modest growth
Global iron ore production will grow due to mine expansions in Brazil and increasing output from India, according to the latest analysis from Fitch Solutions. Meanwhile, output growth in China will decline on the back of falling ore grades and high production costs.
The report found global iron ore production will grow modestly from 3,322mnt in 2019 to 3,430mnt by 2028. This represents average annual growth of 0.2% during 2019- 2028, which is a significant slowdown from an average growth of 4.5% during 2009-2018. On the one hand, supply growth will be primarily driven by India and Brazil where major miner Vale is set to expand output with its new mine. On the other hand, miners in China, which operate at the higher end of the iron ore cost curve, will be forced to cut output due to falling ore grades.
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Global focus:
Australia
Fitch has forecast iron ore production in Australia to decline slightly over 2019-2028, averaging an annual 0.6% contraction, compared to 10.5% growth over the previous 10-year period. This is due to mothballing of mines from junior miners as iron ore prices remain weak, while major players will stick to their production growth targets to crowd out high cost producers. Declining production costs will keep major miners' strategy of increasing output to reap economies of scale economically sustainable.
Brazil
Brazil's iron ore production growth will remain strong in the coming years, due to low operating costs and a solid project pipeline. However, growth will begin to slow towards the back end of our 10-year forecast as declining iron ore prices weigh on the sector. Fitch forecasts Brazil's iron ore production to increase from 453mnt in 2019 to 566mnt by 2028, averaging 2.3% annual growth.
China
In the long term, China's iron ore production will edge lower over the coming years, as weak iron ore prices (once the 2019 rally from renewed Chinese government support to the economy cools) and tightening environmental regulations force higher-cost operations offline. Fitch forecasts the country's output to decline slightly, from 1,281mnt in 2019 to 1,255mnt by 2028. China's iron ore imports will slow over the coming years in line with slowing steel production.
India
India's iron ore output growth will be supported by the removal of export taxes in the Union Budget for low-grade ores and the country's Mines & Minerals (Development & Regulation) (MMDR) Act, which will streamline licensing and reopen closed mines. Although the MMDR Act will support ore output growth, the royalties included in the Act will limit the sector's overall growth potential.
