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Africa|Environment|Freight|Gas|Iron Ore|Steel
Africa|Environment|Freight|Gas|Iron Ore|Steel
africa|environment|freight|gas|iron-ore|steel

Iron-ore price makes for positive outcomes

An image of Kagiso Asset Management portfolio manager Mandi Dungwa

MANDI DUNGWA South African iron-ore miners are doing very well, owing to the iron-ore price being at an all-time high

23rd July 2021

     

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South African iron-ore miners are doing very well, with the iron-ore price currently at an all-time high,says specialist investment firm Kagiso Asset Management portfolio manager Mandi Dungwa.

Although China accounts for more than 65% of iron-ore demand – making it home to some of the industry’s largest customers – the persistent slowing of the Chinese economy and drop in iron-ore prices in 2015 resulted in local miners having to restructure their businesses to adapt, consequently enabling them to capitalise on the price recovery, she explains.

“Following the 2015 crash and businesses working towards reducing costs and becoming leaner, the price environment came at the right time for the miners. Chinese demand has also surprised many; however, the industry is curious about when the demand will reach its peak.”

Dungwa comments that, with South African iron-ore miners having to deal with higher freight costs than those of their Australian peers and the geographic distances between South Africa and China, the country is at a disadvantage in terms of freight costs for seaborne exported iron-ore.

“However, the advantage that South Africa has is geology, as it has some of the highest quality iron-ore globally.

“South Africa has a higher lump proportion when compared to other iron-ore producers. The country’s iron-ore is therefore higher quality than the benchmark of 62% fines and as it produces at grades higher than 64%, local miners’ prices are higher than the benchmark price.

“If one looks at the 62 Fe Index, the price is currently about $200/t, which I think is phenomenal. The market is enjoying a good price at the moment.”

In addition, the South African lump proportion produces a direct charge product and can be put directly into a mill or a furnace. Therefore, the local product emits less carbon and is more environment friendly, which makes it integral to China achieving its priority of producing cleaner steel – in line with global trends, Dungwa adds.

She says a concern for the industry is China’s high level of iron-ore consumption when compared with that of both developed and emerging economies, and the implications for iron-ore miners.

Countries such as the US and parts of Europe use a lower percentage of iron-ore to produce steel. These countries tend to use scrap steel, but it would require China to use a higher-level stock of scrap steel to achieve the same result.

“As China’s use of scrap steel is still in its infancy, it will take years for the country to reach the stage where the demand for scrap steel will grow. However, when this happens, it will not only reduce the demand for iron-ore but also affect steel manufacture,” says Dungwa.

She notes that the US uses about 70% to 80% scrap steel, whereas China uses about 10% scrap steel; however, China plans to increase that number to 20% by 2025.

While there is no clear indication as to when iron-ore demand is likely to decline, the industry bases its forecasts on China inevitably requiring less steel in future.

However, there is a possibility that countries such as India and other emerging nations can replace some of that demand.

“Generally, if you have one big customer in China that potentially will not require that product in future, it can be interpreted as a negative outcome, but South Africa is well positioned from a quality perspective.”

The global push towards decarbonisation and reducing greenhouse-gas emissions will result in continued demand for premium- quality iron-ore, which South Africa provides, Dungwa concludes.

Edited by Nadine James
Features Deputy Editor

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