Recently, there have been major news from the supply side of foreign mines. While the major iron ore supply countries have successive problems, the domestic port evacuation volume has remained at a high level, continuously stimulating iron ore prices. By comparing and analyzing the fundamental data of the iron ore market in 2019 and 2020, we analyze whether the iron ore price increase in June can continue.
Total iron ore inventory is tighter than last year
In terms of iron ore inventory, we analyze the situation of port inventory and steel mill inventory. Over the past 11 weeks, 45 iron ore stocks in Hong Kong have continued to decline and are currently below 110 million tons. At the same time, the amount of sparse ports continued to be high after mid-April. This year's iron ore decompression process started after the Spring Festival, and in 2019 due to the impact of Brazil's dam breaks, the decompression process did not start until April of that year.
In terms of steel mill inventory, we compared the total inventory of sintered powder ore of 64 steel mills in 2019 and 2020. The total inventory at the beginning of the year was much higher than last year. After several months of high demand, the current total inventory is close to last year's level, with a year-on-year increase of 3.85%.
Port inventories have decreased significantly, and steel mill inventories are roughly the same as last year. Overall, iron ore inventories are tighter than in 2019.
Affected by Brazil epidemic, global iron ore supply is tight
On the supply side, since the Spring Festival of 2020, the total shipments in Australia and Brazil have been at a low level year-on-year.
For Brazil, the shipment volume in the first quarter of this year was similar to the shipment volume affected by the dam breach in April-June last year. Vale, Brazil's largest iron ore supplier, reported in the first quarter of 2020 that the total output of iron ore in the first quarter of this year was 59.6 million tons, lower than the first-quarter guidance output of 63 million to 68 million tons.
Based on the loss of production in the first quarter, Vale reduced the annual output of fine ore from 340 million to 355 million tons to 310 million to 330 million tons, and reduced the annual production of pellets from 440 million tons to 350 million to 400 million tons. Ton. The company gave four main reasons: first, the first quarter production decreased; second, Timbopeba and Fabirca areas delayed the evaluation and approval process due to the impact of the new coronary pneumonia epidemic; third, damage in the 2019 dam break The aftermath of the Brucutu tailings dam will continue until the end of the second quarter as soon as possible; fourth, the impact of the new coronary pneumonia epidemic.
In terms of regions, the five mining areas of Vale’s southeastern system and southern system have the largest year-on-year decrease in output, while Minas Gerais’ S11D mining area and the Midwest’s Corumba mining area have a certain range in the first quarter. Increment.
Four Vale assessments of Vale’s four causes of future production declines are actually closely related to the new coronary pneumonia epidemic. At present, the outbreak of the new coronary pneumonia in Brazil is still in the outbreak period. According to the announcement and news compilation of the local health department in Brazil, it can be found that the systemic mining areas in the northern, southern and southeastern Vale have serious epidemics, and the epidemic is still in the outbreak stage. The output of the affected areas reached 59.04 million tons in the first quarter of this year. Only Mato Grosso, where the Midwest system is located, is under control, but the state’s iron ore production capacity in the first quarter is much smaller than in other regions, at only 595,000 tons. As the southern hemisphere enters winter, the epidemic in Brazil may deteriorate further.
From January to May, Brazil's iron ore to China was about 78.7 million tons, a year-on-year decrease of 5%. We also estimated the amount of iron ore shipped from Brazil to China in June based on the shipping table data. According to projections, Brazil reached about 12.8 million tons in June, a year-on-year increase of about 60%. Brazil’s iron ore shipments to China in the first half of 2020 are estimated at 89.90 million tons, and a cumulative shipment of 90.6 million tons in the first half of 2019. In other words, due to heavy rains and epidemic conditions, the gap in the volume of goods shipped from Brazil to China in the first half of this year was closer to the gap directly caused by the dam-break accident last year.
In Australia, in April 2019, due to the impact of hurricanes, shipments in that month dropped sharply. Although China-Australia relations were tense some time ago, there are rumors that it will affect Australia’s iron ore exports to China, but from the current shipping table data, Australia’s iron ore exports to China have increased significantly compared to last year . From January to May 2019, Australia shipped 274 million tons of iron ore to China, compared with 305 million tons in the same period of this year, an increase of 31.169 million tons or 11%. We anticipate that shipments from Australia will remain at the current level, with an estimated 60 million tons arriving in June.
According to the shipping data, we found that from January to May 2020, the global iron ore shipment to China was 439 million tons, a year-on-year increase of 28.02 million tons. The increase was mainly due to the increase in shipments from Australia.
In the first half of this year, it is expected that Brazil's shipments will continue to be sluggish, while the increase in Australia will make up for the supply gap in Brazil and other countries. The short-term foreign mine supply is expected to be flat with last year. Looking at the whole year, if the epidemic situation in Brazil is controlled in the second half of the year, the shipment volume will pick up, and the total supply of foreign mines will exceed the level of last year.
Iron ore sparse port and demand analysis
From the seasonal data of the C/S ratio, the downward trend of the C/C ratio of the port in 2020 started on February 9, while the continued decline of the C/C ratio in 2019 will not start until March 30 of that year.
Judging from the sparse port data, except for the Spring Festival, the average daily sparse port volume of iron ore this year is higher than that of the same period last year, and has remained at a high level of more than 3 million tons since mid-March. This can also be confirmed from the port ore warehouse sales ratio. Since the Spring Festival, the iron ore warehouse sales ratio has been at a low level, far lower than the same period last year.
Comparing the total daily consumption of internal and external mines in 2019 and 2020, we found that since March this year, the total daily consumption of internal and external mines has increased from last year. The average daily consumption of domestic and foreign mines in April last year was 630,000 tons. The total daily consumption of domestic and foreign mines during the same period this year was 670,000 tons, an increase of 6.35% over the same period last year.
Judging from the relationship between supply and demand and inventory, from January to May this year, the port inventory was lower than last year, the steel mill inventory increased slightly, the daily consumption of the steel mill increased significantly year-on-year, and the port iron ore warehouse sales ratio decreased. It can be seen that compared with last year, iron ore consumption is stronger this year.
Since the beginning of 2020, the production of pig iron is slightly higher than that of the same period last year. The output of pig iron in April was 72.02 million tons, a year-on-year increase of 3%. Considering that the current output of steel mills is relatively affected by policies, although the steel industry is facing many difficulties, there is still some room for development under the support of a series of favorable policies. To this end, we have assumed the impact of the three steel production forces on iron ore demand, namely: high demand (later output is 102% in the same period in 2019); neutral demand (maintaining 101% in the same period in 2019); Low demand (late output is at the same level in 2019).
Based on the above data and assumptions, we infer that under good demand, the demand for iron ore in June increased by approximately 2.2 million tons from last year; when the demand growth is neutral, the growth of iron ore is approximately 1.1 million tons from last year . Global iron ore shipments to China are expected to increase by approximately 3.7 million tons year-on-year in June. In general, considering the shipping time of Brazil and Australia to China, the contradiction between iron ore supply and demand will be alleviated to a certain extent in June, and the fundamental support for iron ore prices continued to rise weakened.
Post time: Jun-05-2020