Iron ore, metallurgical coal, iron bearing waste and other raw materials for iron and steel production are the world’s largest commodities in terms of production, consumption and transportation. Recently, global iron and steel enterprises have reduced production due to the sharp reduction of demand in downstream industries such as construction, mechanical equipment and automobile. However, I will focus on the impact of the new crown epidemic on the upstream iron and steel industry.
Australia’s iron ore and metallurgical coal production is basically unaffected
In the commodity market, we often see that one country or a few countries dominate the global supply. OPEC, Russia and the United States, for example, dominate global crude oil supply.
Iron and steel raw materials are no exception. Australia is currently a major supplier of iron ore and metallurgical coal in the world. In 2019, its supply of iron ore and metallurgical coal accounts for about 60% of the world’s seaborne supply. Therefore, Australia is at the core of the global steel value chain. Once the supply of Australia is interrupted, it will have a disastrous impact on most of the global steel enterprises and their customers.
Fortunately, so far, the mining and logistics transportation of iron ore and metallurgical coal in Australia have shown considerable impact resistance during the new epidemic. In fact, Australia has even increased its supply of iron ore to the shipping market.
In March 2020, as the world’s largest bulk cargo export port, Australia’s port of Hedland’s iron ore export volume reached a record high. The shipment volume of highpoint and dalringpur Bay Coal terminals accounts for more than half of Australia’s metallurgical coal export volume. The statistics of coal throughput of the two terminals show that Australia’s coal production and logistics chain are basically unaffected.
BHP is Australia’s largest metallurgical coal producer, accounting for more than half of the country’s hard coking coal supply (1096, 23.50, 2.19%). The company’s quarterly production statistics also show a similar situation. Australia’s iron ore and coal mining and logistics business has a fairly high level of automation, which partly explains the strong impact resistance of the two industries.
Brazil’s iron ore production has resisted the shock, but the risk remains
As the world’s second largest supplier of marine iron ore, Brazil’s major iron ore mining and logistics transportation has not been significantly affected by the new crown epidemic.
However, Vale, Brazil’s and even the world’s largest iron ore producer, has warned that its production may be affected by employee isolation and that it may need to take emergency measures according to the development of the epidemic in Brazil.
In addition, the company also said that due to last year’s brumadino tailings dam failure accident, the company’s iron ore mining and processing business was suspended authorization, the new crown epidemic caused the company to restart this part of the business authorization process delay.
Iron ore and metallurgical coal production in other countries is complex
Mining is one of the core industries in the United States. During the period of city closure due to the epidemic, the U.S. government still allowed mining to continue to operate. The United States is the world’s second largest supplier of marine metallurgical coal in 2019, and can meet most of its domestic iron ore demand.
Nevertheless, many US iron ore and coal production capacity has been suspended in view of the economic downturn caused by the new crown pandemic in the United States and the country’s traditional coal export markets – Europe, India, Japan, Brazil and South Korea.
In some small iron and steel production raw material suppliers, the impact of the new crown epidemic on mining operations is more serious. South Africa and India’s policy of state and city closures, as well as mining bans in some Canadian States, have significantly reduced their mine production. In 2019, these three countries account for about 10% of the world’s seaborne iron ore supply, so the interruption of supply from these countries will have a significant impact on the global supply market as a whole.
Nevertheless, some of these countries are relaxing restrictions, and major mining companies have resumed production on the premise of reducing production and reducing field staff. India is one of the largest importers of metallurgical coal, so the overall closure of the country may have a greater impact on the demand side of the marine coal market.
For mining companies, a basic fact is that the new crown epidemic has caused the postponement or cancellation of exploration operations and investment plans, because companies want to hold cash to cover operating expenses during the crisis.
The scrap market is seriously affected
The new crown epidemic seriously affected the production and collection of scrap. Due to the stagnation of production activities in some steel industries and the obvious deceleration of other industries, the production of industrial scrap has declined rapidly.
In addition, with consumers delaying the purchase of new household appliances or cars, enterprises delaying investment activities, and the slowdown or postponement of building demolition activities, the production of depreciated steel scrap (refers to the waste produced by steel products that need to be melted and recycled at the end of product life) has also dropped sharply.
At the same time, the closure and social distance measures also increase the difficulty of scrap collection. Although this situation is worrisome, with the lifting of relevant restrictions, we will see the situation gradually improve, especially in those developed countries that traditionally supply scrap to other countries.
With the relaxation of the closure measures, uncertainty still exists.
Although life in China has basically returned to normal, and the situation in Europe has gradually eased, we should note that the recovery process we are looking forward to is facing considerable uncertainty, whether in China or other countries. We expect that the performance of steel raw material market will be very unstable during the recovery period.
There is still considerable uncertainty as to how long the current emergency will last and how far the epidemic will spread globally. The recovery speed of different regions and different industries may be inconsistent, so it may lead to uncertainty and instability of the commodity market for a period of time.
Finally, we must realize that the scale of the impact of the new epidemic will have a long-term or even permanent impact on economic and social life as well as the global value chain, but the final impact remains to be seen.
Post time: Jan-06-2021