CTM The iron ore thread

Just wanted to create a thread for CTM to highlight current iron ore situation and prospects surrounding the company in regard to the current state of play in iron ore regarding supply / demand and factors that are influencing it.

First post will be rather brief but will update as news and new development's progress.


Iron ore industry
This is a slightly modified re-post of something I have put on here recently that has a large impact on CTM and it’s Jambreiro project. Here is an overview of the current state of the IO industry and how prices are being affected, I will discuss from the perspective of the 2 major forces that drive price change: Supply and demand.

Supply
The Vale Brumadinho disaster earlier in the year has had a very significant impact upon the supply of IO. Whilst it is difficult to quantify exactly how much supply was removed from the market, some sources have put the number at 70 million tonnes, with others going as high as 90 million tonnes, and Vale were forced to declare force majeure on some contracts.
The events at Brumadinho caused an immediate change in the iron ore price forecasts, with the effects expected to last at least until the end of 2020:




Before this, Vale were producing more high grade iron ore fines and pellets than either Rio Tinto or BHP.
In the fallout of the disaster the Brazilian government shut down a further 9 Vale mines that used upstream tailing dams -- the same methodology used at Brumadinho.
In addition to the mines that used upstream tailing dams, Vale were also ordered to halt production at their Brucutu mine -- which accounted for 30mtpa of production. Initially Vale had been allowed to reopen the Brucutu mine, but a court order over-turned this, creating further uncertainty as to when Vale’s operations may recommence.

As well as the large supply deficit created by Vale, the Australian iron ore supply was also diminished by the cyclone that hit Port Hedland. Reports estimated that BHP lost between 6-8 million tonnes of production as a result of the storm, and Rio Tinto lost 14 million tonnes of production this year (as a combination of the cyclone and a fire at the Robe valley project).

Demand
In the past decade China have been the main driving force behind the iron ore market. It was Chinese demand that was behind the switch to daily pricing, and now China account for 60% of the world’s Iron ore demand.
Last year saw an increase in Chinese demand for high quality iron ore due to changes in environmental laws encouraging steel producers to use less coke in the sintering process. However, 2019 was expected to be “a year of weakness for the iron ore market” with supply expected to increase at a more significant rate than demand.
The supply disruptions alone would have been enough to force a reassessment of the market sentiment, yet it appears that Chinese demand may also have been underestimated. Heading into 2019 Chinese steel production had been expected to stagnate, despite these expectations, first quarter steel production saw a 10% year on year growth rate, and set the record for the most steel produced in any recorded first quarter. On the back of these numbers Anglo American’s chief research manager for steel and iron ore estimates that Chinese iron ore demand will rise 1.8% this year.
A major reason for this increase in steel production comes from the Chinese government making an AUD$478bn investment in transport and infrastructure.



Chinese steel producers are now left with the three options; paying more to secure the supply of high quality iron ore, lower production rates, or use lower grade ore. Steel producers who elected to take the third option have already had an impact on the market as the price of lower grade ores started to rise (to the benefit of FMG and their 56.7% super special fines, which increased in value).
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