Ann: Investor Presentation - August 2020, page-15

Good News continue... as Tim Treadgold wrote elsewhere:

...iron ore goes from strength to strength and might hang on to its hugely profitable price of around $US120 a tonne for some time, and perhaps for the next five-to-seven years, according to the latest analysis by the leading investment bank, J.P. Morgan.

Chinese steel demand is the primary cause of that remarkably optimistic observation, but a secondary factor is that supply has hit the ceiling with Australian iron ore mines running at capacity and Brazil struggling to restore full output, and even when Brazil is back to its guidance levels there could be a shortfall.

J.P. Morgan sees iron ore starting 2021 at $US110/t and averaging $US100/t all of next year, which means the fat profits to be reported next week by BHP and Fortescue Metals might not be the end of the boom.

“We struggle to see what releases the current pricing tension heading into next year,” J.P. Morgan said. “Chinese steel output has accelerated all year, with the rest of the world likely to follow into 2021.”

But that’s not the end of the positive news because the bank believes prices will remain elevated until the proposed Simandou mine in the West African country of Guinea comes on line and that will not be until 2025, at the earliest.

“We are starting to think prices could remain well above cost curve support levels until Simandou comes to market, which could be five-to-seven years away,” J.P. Morgan said.

Local iron ore stocks started the week strongly before fading. Fortescue Metals hit an all-time high of $18.84 on Tuesday but closed yesterday at $18.06, where is started. Mineral Resources also traded to an all-time high of $27.74 before slipping back to $27.48, down 13c over the week.

The significance of J.P. Morgan’s iron ore observations is that the bank is not alone. Other banks have spotted the same market-moving event developing later this year and that is a post-Covid-19 revival in countries other than China.

Credit Suisse and Citi saw the emerging importance of the rest of the world, as did UBS and Macquarie, which repeated the idea this week, and while it might be a case of the bank not wanting to be have a different view to their rivals (herd behaviour), it is more likely that they’re reading the same signals to arrive at the same conclusion – iron ore is hot and is likely to stay that way.

Yesterday’s research from the banks reinforced the case for iron ore, with Credit Suisse revisiting its earlier comments to add that its assessment of Chinese port stocks pointed to a depletion of iron ore fines, especially Australian material preferred by steel mills..."