Driving down the Great Northern Highway through the remote Pilbara region of Western Australia at dawn is an experience.
A landscape of gold, red and around you, the sky shines with a pink hue and the air is bright.
Beneath all this herbal appeal lies Australia’s most valuable: iron ore.
The assets helped reduce the recently revealed budget deficit through $50 billion, which is what Western Australian Prime Minister Mark McGowan struggled with last year, and is one of the few sectors that stands out because others have been paralyzed by COVID-19. .
He’s as smart as gold. In fact, it’s better.
And there’s never been a time to be an iron miner.
Earlier this month, spot iron ore reached a new us$240 maximum consistent with the ton.
A year ago, it valued less than a portion of that amount, and at its last peak during the mining boom a decade ago, iron ore was around US$190 relative to tonne.
As the world’s largest marine iron ore, Australia has benefited.
“We have noticed record prices, but we have also noticed the resource sector across the resource sector that is expected this year, in the midst of a pandemic, to break all energy and resource export records,” the Federal Minister of Resources said. . Keith Pitt, a stopover at BHP’s 53-year-old Mt Whaleback mine in Pilbara.
BHP is the largest iron ore exporter at the moment and Mt Whaleback is its oldest mine, with 15 years of operation.
Last week, BHP opened its new mine with the logo, South Flank.
The miner is in the process of exporting up to 255 million tons of iron ore this year.
Spearhead of Australia
Iron ore is Australia’s main export and the Treasury expects the market to grow from $103 billion last year to $136 billion this fiscal year.
As the amount of goods increases, miners’ profits increase, as does the amount of taxes and royalties they pay to federal and state governments.
“Increased royalties and tax revenue continue to contribute to our economy, and assistance pays for the must-have facilities that Australians depend on,” Pitt says.
He’s been in Pilbara for the first time since he was a minister last year.
“What I see here is a very committed workforce that is incredibly proud of your industry,” she says.
“They are incredibly efficient, which means they are competitive in markets around the world, helping to keep them in a smart place.
“Now there’s a deficit that raises costs and Australia can take advantage of it, and that’s great,” Pitt says in the huge hollow of whaleback mountain’s iron mine.
The rising costs of iron ore are a classic case of demand.
Australia’s global iron ore dominance has not had a decent festival since January 2019, when production by Brazil’s second-largest exporter, Brazil, fell particularly after the collapse of the Samarco Dam.
The South American country last year was paralyzed by COVID-19, further hampering production and leaving Australia as the only major supplier of the metals manufacturing element.
At the same time, China’s economic expansion continued, driven by the structure of skyscrapers and infrastructure, consuming quantities of steel.
In April, its metal production peaked.
According to China’s National Bureau of Statistics, in the first 4 months of the year, the plant produced approximately 16% more metal than at the same time last year.
“We are in a very market,” Elizabeth Gaines, CEO of Fortescue Metals, told The Business Elizabeth Gaines.
“This strong calling is reflected in the dignified environment we are witnessing lately. “
FMG is Pilbara’s third largest iron ore exporter and plans to ship up to 182 million tonnes of its Port Hedland port operations this fiscal year.
“We’ve been watching this cycle for some time, in terms of robustness and demanding supply restrictions, so if it’s a supercycle, I never like to check if the value of iron ore is expected. “
But some expect courage, and that’s not good news.
“Our forecast for iron ore is to return to around US$110. consistent with the ton through the end of the year,” said Vivek Dhar, CBA’s mining and energy economist.
Iron ore costs have already fallen by about 20% since its peak a few weeks ago and are now comfortably below US$200, in line with the ton.
“What you notice in terms of volatility only provides a concept of how temporarily those costs can change,” Dhar says.
Marcel Thieliant, senior economist at Capital Economics, recently published a note that read: “As genuine Chinese real estate investment slows down and developers face tighter financial constraints, we expect the value of iron ore to fall to $140 until the end of the year. “
“You don’t need a large number of replacement orders to see a major replacement in terms of price,” Dhar says.
“Once appetite or consideration requests increase, we may see the right iron ore costs and expect them to continue to increase. Consultation is only about the right time.
A symbiotic relationship
China has imposed price lists on several Australian products over the following year, but few expect it to do so with iron ore.
According to global monetary company UBS, China buys about 70% of Australia’s iron ore exports, which in turn account for about 60% of all Chinese iron ore imports.
To put it bluntly, they love us and we love them.
Iron ore on Australian ships from port Hedland and Dampier ports in Pilbara accounts for approximately 5% of Australia’s GDP.
That’s about 20 consistent with the percent of all our exports.
“We have a strong relationship with China and we will continue to have relations,” Pitt says.
“We have industrial agreements in place. We hope that all of our trading partners will meet the needs of these industrial agreements by adding China. “
Any relief on Australia’s iron exports would have a significant effect on the economy and government budgets.
“In the year that ended June 20, the general corporate tax paid through miners was around $24 billion,” Gaines says.
“This year we are seeing an even more strong increase in commodity prices, so I hope that the general tax the sector will pay to the federal government will be very significant this fiscal year. “
But everyone loves bargains and China must do everything it can to reduce costs and dependence on Australian iron ore.
One of the tactics he is looking to achieve is to expand his own iron ore production, either in China or by launching his predominantly public Simandou in Guinea, West Africa.
Rio Tinto is co-owner of the site.
“We discovered Simandou in the 1990s,” says Simon Trott, recently appointed managing director of iron ore in Rio Tinto.
“We continue to work with our partners on this assignment to find a path to marketing. “
“Approximately 1. 9 billion tons of iron ore transported by sea are needed each year and the market will want those tons to complement our activities in Pilbara.
“Especially in the context of our evolving metal industry, visitor demands are evolving and, therefore, the operations of Pilbara, Simandou and also our iron ore company in Canada position us well to respond no matter how the metal industry evolves.
A year after flying the juukan Gorge caves, Rio Tinto is in fixed mode.
“This has never happened. We are sorry that this happened and we regret our mistakes,” Mr. Trott.
Despite this and a primary review of management, Trott’s appointment, Rio Tinto is ready to export up to 340 million tons of Pilbara iron ore this calendar year.
Capital Economics believes Simandou will be for the next decade.
Economists also told investors this week that they expected China to use more recycled metal to reduce its carbon emissions, reducing its reliance on Pilbara iron ore.
“In the short term, China still has no option to grit its teeth and continue to buy Australian iron ore, even as the bilaterals continue to crumbl,” said Julian Evans-Pritchard, senior analyst at Capital Economics for China.
“But this dependence will be minimized over time thanks to an increased source from other sources, increased use of recycled metal and a structural decline in demand for metals in China. “
“It would probably be imaginable for China to stop shipments of Australian iron ore in the middle of the decade. “
But top analysts think that’s unlikely.
“Australia’s position will remain very strong,” Dhar says.
“It must be noted that in, say, our exports to China, we are such a giant component that moving Australia would require many tons.
“It is anything we do not see, from a volume point of view, that is invested in such a way that Australia is in real danger of being made the largest exporter of iron ore.