Oz Ore Exports Continue to Lose Ground to Brazil

By Glenn Dyer | More Articles by Glenn Dyer

Australian iron ore exports are showing more signs of having plateaued in 2021 while shipments from our major competitor Brazil are surging, pushing the price of the key iron ore product from that country to a new all-time high on Monday.

That in turn has seen Australian exports trimmed as Chinese buyers seek more higher-grade ore from Brazil to help reduce pollution in smog-prone big cities in northern China – especially Beijing.

That’s why iron ore exports out of Port Hedland, the world’s biggest shipping complex for the commodity barely moved in the month of March and the March quarter.

The continuing weakness in shipments to China, the world’s biggest buyer of iron ore shows up clearly in the Port Hedland data. Exports to China by BHP, Fortescue, Roy Hill and several smaller shippers fell 5% in March from March 2020 and 3% for the quarter.

That confirms figures in the Australian Bureau of Statistics merchandise trade reports for January and February showing a fall of 12.4 million tonnes in exports of iron ore to China (7.2 million tonnes in January and 5.2 million tonnes in February). The rest of the fall is due to lower shipments by Rio Tinto and other smaller producers.

Figures from the Pilbara Ports Authority on Monday showed 38.14 million tonnes of iron ore was shipped to China in March, down from 40.43 million tonnes a year ago. March however did see a jump in volumes from the 30.730 million tonnes shipped in February (which was down 10% from March 2020).

For the quarter, shipments to China fell by 3.2 million tonnes, or around 3% to 104.43 million tonnes from the record 107.67 million tonnes shipped in the first three months of 2020.

Exports of iron ore to all customers (Japan, South Korea, Taiwan and others) edged up marginally to 126.389 million tonnes in the three months to March, against 126.262 million tonnes in the March quarter of 2020.

The weak performance out of Port Hedland in the March quarter and suggested by the ABS data in January and February is in stark contrast gto what is happening in Brazil.

Even though Covid surged in Brazil in March, iron ore exports jumped more than 30% in the month.

Brazilian exports are being driven by the higher demand for 65% iron ore fines of the type produced in Brazil mainly by Vale, the world’s second biggest miner of the commodity.

A pollution and capacity crackdown by the Chinese government is forcing steel mills to cut pollution by reducing their sintering operations (where iron ore, coke and other raw materials are baked to produce feed for blast furnaces). 65% fe fines from B razil give a higher yield and need less energy (and produce less pollution than 62% and 58% Fe fines).

Data earlier this month from the Brazilian government show iron ore exports jumped 29% in the March quarter to more than 79 million tonnes from 65 million in the first quarter of 2020.

Figures from the Brazilian economic ministry showed iron ore exports (mostly from Vale) jumped by nearly 34% from a depressed March 2020’s 21.21 million tonnes to 28.42 million tonnes last month

Exports in February this year fell to 22.1 million tonnes while they started 2021 strongly with 28.99 million tonnes shipped.

All up 79.5 million tonnes has been exported in the first three months of this year as demand recovers in China and Europe.

And that demand has pushed the price of the 65% fe fines to a series of new highs since February – the latest being Monday’s index price of $US205.90, according to the Metal Bulletin’s Fastmarkets website.

That was up just over 1% or $US2.80 a tonne and saw the margin over 62% Fe (the key blend from Australia) widen to more than $US31 a tonne, closest to the highest on record. 62% Fe fines ended at $US174.57 a tonne (The all time high for 62% Fe fines is $US1919.70 a tonne set in February, 2011), up $US1.03 a tonne.

The spread with the lower grade 58% Fe Fines (produced by Fortescue and others) also widened to more that $US49 a tonne, also a new high.

The index price for 58% Fe fines ended at $US156.34 a tonne, up $US1.87 a tonne.

The higher demand for 65% Fe fines from Brazil means less demand for the Australian 62% Fe product which helps explain the dip in first quarter shipments out of Port Hedland and the fall in overall iron ore export volumes in January and February.

 

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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