Australia on track for record FY'21 iron ore exports, sets sights on India

Australia, the world's biggest iron ore exporter, has confirmed India as the world's fastest-growing steelmaker and iron ore importer out to 2026, providing an enticing longer-term option for a government that expects A$100 billion per year in iron ore export earnings during that period.

The latest Resources and Energy Quarterly of Australia's Office of the Chief Economist, released March 29, said iron ore earnings are on track for a record high of A$136 billion in fiscal 2021, after topping the A$100 billion mark for the first time in fiscal 2020. Iron ore will contribute to a forecast overall resource and energy export earnings record of A$296 billion for the fiscal year.

The quarterly expects Australia's iron ore export volumes to grow from around 900 million tonnes in fiscal 2021 to 1.1 billion tonnes by fiscal 2026, as several mines open or expand in Western Australia. Iron ore exports are forecast to earn above A$100 billion annually for each of the next five years.

Challenges to dominance

The government warned of challenges to Australia's dominance in exporting over half of seaborne iron ore in 2020, with African and South American output expected to increase over the outlook period. The Resources and Energy Quarterly cited Rio Tinto Group's full-year 2020 results, which revealed site roadworks are underway at Simandou Blocks 3 & 4 in Guinea.

Rio Tinto's review into the required cost and feasibility of investments, including port connections and more than 600 kilometers of rail, should conclude by the end of fiscal 2021.

Yet while the depletion of China's own iron ore reserves is prompting it to look for new sources, including Simandou, such efforts are not expected to produce any substantial production out to 2026, Australia's government said.

In light of such diversification moves and diplomatic tensions, earlier this month a parliamentary committee called for stronger ties with India, Indonesia and Vietnam to mitigate Australia's heavy export dependence on China, which poses economic and security risks.

Exports of minerals critical to new and low emission technologies are also set to surge over the next five years, with lithium exports to rise more than five-fold in real terms from an estimated A$1 billion in fiscal 2021, nickel exports to almost double, and copper exports to rise by a third.

The combined revenue from the three commodities are set to exceed current thermal coal revenue in real terms by fiscal 2026. Thermal coal exports are set to drop from A$21 billion in fiscal 2020 to A$15 billion in fiscal 2021, then stabilize out to fiscal 2026.

Australian metallurgical coal prices have regained some of the losses incurred as a result of China's informal import restrictions, and export values are forecast to rise from a low of A$23 billion in fiscal 2021 to above A$30 billion by fiscal 2026.

The Resources and Energy Quarterly noted that high Chinese demand and fears of disrupted supply in Brazil and elsewhere drove iron ore to its highest level since 2011, when the government finalized its data on March 18, 2021. Australia's government now expects the price to stay "well above" US$100 per tonne until late 2021, before easing gradually until it plateaus at around US$72/t in real terms by the end of 2026.

The quarterly said that "with a similar sized (but younger) population, India could eventually replicate China's extraordinary demand for resource and energy commodities." India's domestic steel sector is consolidating amid efforts to leverage relatively low labor costs and what it calls "significant" untapped iron ore reserves.

The report cited the India Brand Equity Foundation's forecast of consumption rising from 99 Mt in fiscal 2019 to 230 Mt by fiscal 2031.

While COVID-19 has delayed the progress of the implementation of India's 2017 National Steel Policy, which envisages 300 Mt of production capacity by fiscal 2031, the Australian government's quarterly said India's steel production is still expected to grow by over 40% over five years from a low point in 2020.

Most of that should be met by local iron ore output, but Wood Mackenzie's senior iron ore analyst Kim Christie said in an interview that India's iron ore is higher cost, and mostly of a lower quality, than Australia's.

Expressions of interest

Sanjiv Manchanda, who has been CEO of Atlas Iron Ltd. since billionaire Gina Rinehart's Hancock Prospecting Pty Ltd. took over in 2018, confirmed during a March 25 West Australian Mining Club function in Perth that his company had received some expressions of interest from Indian steelmakers.

He noted that India's government has been working on reforms related to mining and issuing licenses for operating mines. While Atlas still receives inquiries, "there is nothing sustainable yet. However, there is some very strong anticipation that it could change over the next five years."

The quarterly said the steel production of another key Australian trade partner, South Korea, has recovered to be near pre-COVID levels, with new facilities and upgrades to modest growth out to 2026. Meanwhile, Europe's steel production is not expected to fully recover, with some mills set to close permanently, and Chinese groups are funding steelmaking capacity across the Philippines, Malaysia, Indonesia and Myanmar.