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• Iron ore fines prices traded this week at $US174.50 per tonne, steady on a week ago
• Hard coking coal prices were $US2.70 lower on-week at $US116.50 per tonne at Queensland ports
• China’s steel reinforcing bar price is $US10 higher this week at $US730 per tonne

  China’s plans for more high-speed rail corridors to connect its major cities is the latest spur to the country’s demand for iron ore as pressure has eased on profit margins for Chinese steel mills.

  Prices for 62 per cent iron ore shipments delivered to China were steady this week at $US174.50 per tonne ($228.30/tonne), and are still at lofty 10-year highs.

  High iron ore prices had been weighing on the profitability of steel mills in China, until prices for steel products increased this week to fresh records.

  “Profitability of Chinese blast furnaces has turned negative following the rise in iron ore and coking coal prices,” analysts at ANZ bank said in a report last week.

  “This may be impacting demand, with port stockpiles of iron ore rising last week to the highest level since November last year,” they added.

  China’s economy has benefited from increased economic stimulus in 2020 that has flowed into infrastructure-intensive economic activity like construction.

  “China has a particularly outsized impact on mining commodities [like iron ore] given that it accounts for 50 to 60 per cent of mining commodity demand,” said analysts at Commonwealth Bank of Australia.

  High-speed rail plans boost iron ore

  China has presented plans to its parliament, the National People’s Congress, to massively expand its rail network for high-speed trains over the coming decade.

  “This includes efforts to improve infrastructure in rural areas of the country,” said the ANZ analysts.

  Beijing has built the largest high-speed train network of any country at 38,000km, and is to add another 32,000km of rail to its high-speed network by 2035 bringing China’s total to 70,000km.

  A new high-speed train service for Lhasa, Tibet’s capital, is to start operating mid-year after new track was laid on the 425km route in 2020, according to reports.

  Beijing also plans to build another 160 airports over the next 15 years, bringing China’s total to 400 by 2035, and to build 460,000km of new roads over the same period.

  “Iron ore futures climbed amid optimism of stronger longer term demand,” said ANZ bank analysts in a report.

  Futures contracts for April settlement were trading at ¥1,200 per tonne ($US185.50/tonne), Tuesday, according to the Dalian Futures Exchange in China.

  Futures prices are about $US10 per tonne above prices for physical iron ore cargoes, and for December-dated futures prices are at ¥1,000 per tonne ($US150/tonne).

  Iron ore stands to gain from China’s bullish growth

  In another bullish note for China’s iron ore demand, some economists are forecasting that the Asian country will exceed its 6 per cent growth target for 2021.

  Commonwealth Bank of Australia’s expert on China’s economy, Kevin Xie, suggests growth could hit 9.2 per cent this year.

  At this rate of growth, were it to be sustained for eight years, China’s economy would double in that time period, making it the world’s largest before the decade is out.

  “China’s stimulus package from last year is likely to keep China’s commodity demand well supported in the first half of 2021,” said CBA analysts in a report.

  Beijing is expected to reveal more of the content of the government’s five-year plan for 2021 to 2025 in coming days.

  The five-year plan also includes sweeping goals for China’s economic and social development for the years ahead up to 2035, reports said.

  More iron ore mines urgently needed

  The implications of China’s economic growth targets for Australia’s iron ore industry are immense as the sector is already struggling to keep up with Chinese demand.

  Supply in the seaborne market is already lagging demand and the effect of this can be seen in resilient high prices for the commodity, currently sitting at their highest since 2011.

  “There is not really a supply shortfall in the iron ore market, rather the price is rising to reflect stronger demand and limited supply,” Magnetite Mines director, Mark Eames, said.

  Without regular increases in steel product prices to offset high iron ore prices, some steel plants could be at risk of having to temporarily reduce their production.

  “Effectively, as the price rises, some of the marginal steel production can no longer occur,” said Eames.

  Industry experts suggest more investment is needed in new iron ore mines in Australia to ensure that shipments keep pace with demand in the world’s epicentre for steel production.

  “To see prices return to where they were five years ago you would need to see an additional 150 million tonnes of iron ore capacity from the major producers,” Eames said.

  To deliver on this scale may be a tall order for the iron ore industry, given the size and urgency of the production requirement.

  “For Australia to add 100 million tonnes of new production capacity that is at least a $US15 to $US20 billions of dollars proposition,” Eames added.

  Magnetite Mines (ASX:MGT) is developing its Razorback iron ore mine in South Australia which is expected to ship its first cargo in 2024.

  GWR Group makes maiden iron ore shipment

  New iron ore producer GWR Group (ASX:GWR) delivered a maiden shipment of 52,000 tonnes to Hong Kong trader Pacific Minerals through the WA port of Geraldton this week.

  A ship is due to depart from the port in late March with a second shipment of premium high-grade lump and iron ore fines from GWR Group’s C4 iron ore deposit in Wiluna.

  “Despite a number of challenges, we are confident we can capitalise on the current buoyant iron ore price, with ore crushing now at 90 per cent of full production and challenges with our haulage fleet to be addressed through the latter part of March and early April,” chairman Gary Lyons said.

  The company is in talks with contractors to increase production from its project to around 20 million tonnes from 1 million tonnes currently.

  High-grade lump and iron ore fines products are being stockpiled by GWR Group at its special warehouse operation in Geraldton port to facilitate regular shipments to customers.

  Meanwhile, Fortescue Metals Group (ASX:FMG) has experienced some cost overruns and delays related to the construction of its Iron Bridge magnetite iron ore project in WA.

  After completing a review of the project to add 22 million tonnes of new iron ore production capacity, the company has pushed back its production start to the second half of 2022.

  The cost of the project to Fortescue Metals Group and its partners in the Iron Bridge project, China’s Baosteel and Formosa Steel, has increased to $US3bn from $US2.6bn.

  “Iron Bridge represents a strategic investment which enables Fortescue to deliver a full portfolio of products to the market generating growth in earnings and cashflow, and resulting in enhanced returns for our shareholders and joint venture partners through all market cycles,” said FMG chief executive Elizabeth Gaines in a company statement.

  The iron ore company reiterated in a presentation last week its shipment guidance for iron ore of 178 million to 182 million tonnes for the financial year ended June 2021.

  China’s steel rebar prices surpass recent highs

  Chinese steel mills are pushing through price rises to their customers for their steel reinforcing bar (rebar) product which is trading at new highs this week.

  At the Shanghai trading hub rebar is selling for $US730 per tonne, representing an on-week rise of $US10 per tonne, according to Metal Bulletin.

  “Rising steel prices dragged iron ore prices higher, with futures breaking above $US170 per tonne,” said analysts at ANZ bank in a report.

  “The market is also expecting more details to be released around the new five-year plan, which is expected to include more spending on infrastructure in rural areas,” they added.

  Another factor driving steel prices is fearful market sentiment around reports that authorities in China’s Hebei, a centre for steel production, may tighten air pollution controls.

  “However, there is speculation that further curbs will be implemented as the government looks to strengthen its climate change policies at the National People’s Congress,” said the report from ANZ bank analysts.

  Over in Europe, the London Metal Exchange’s steel rebar futures contract is trading at $US640 per tonne, just off from a recent high of $US656 per tonne a week ago.

  Queensland coking coal price dips in tepid market

  Prices for hard coking coal shipped from ports in Queensland, Australia, slipped $US2.70 this week to $US116.50 per tonne, according to Metal Bulletin.

  Spot shipments of premium grade Queensland hard coking coal were offered at $123 per tonne free-on-board basis, down $5 on week, according to market reports.

  US hard coking coal cargoes for late-March shipment are available in the spot market at higher prices of $US160 per tonne, but Chinese buyers do not want to overpay for these.

 “There is a standoff in the market. Chinese buyers do not want to overpay, with domestic coal prices falling, and US miners do not want to drop and undersell,” a trader told Argus Media.

  Delivered-cargo prices for US shipments arriving in China are still holding above $US210 per tonne in spite of low levels of demand in the market.

  Futures prices for Australian coking coal were trading lower this week at $US126 per tonne for April settlement, down nearly $US8 from a week ago.

  June-settled futures contracts for Australian coking coal were trading $US3 lighter at $SU136 per tonne, according to the Singapore Exchange.

  For December 2020 and January 2021 futures contracts, prices were at $US147 per tonne and $US154 per tonne, down $US3 and steady, respectively.

  This slight premium to spot cargo prices may indicate that futures prices may have further to fall in the current flat market.

  Port restrictions stay in place in China

  China’s ports are maintaining near year-old import restrictions for cargoes of Australian coal although some ships laden with Australian coal were allowed to berth in February.

  Around 10 ships carrying Australian coal were allowed through to Chinese ports during last month’s Lunar New Year holiday in an apparent humanitarian move.

  Some seafarers on the cleared ships had been waiting to enter Chinese ports for several months and had developed medical issues requiring treatment.

  “These cargoes probably discharged for the purpose of letting crew go home, as many were stranded at sea for months,” a Chinese coal importer told Argus Media.

  Meanwhile, a Russian producer of coking coal has signed a partnership agreement with Baosteel, part of Chinese steel company Baowu Steel Group.

  Sibanthracite Group in Russia is to supply 700,000 tonnes of its pulverised injection coal product to the Chinese steelmaker this year through Russian Pacific ports.

• [Editor:Catherine Ren]