So, some margin repair for Chinese steel mills last week which, ironically, will help prevent a collapse in the iron ore price if it supports steel output.
In important news, Vale announced more ore is returning at Timbopepa with a ramp-up over two months to 14mt, another 7mt. This is half of what it expects to return this quarter:
Another 10mt next quarter. Then 4mt in Q3. Then 21mt in Q4. 49mt is pretty serious volume. Probably worth $50 to such high prices all things equal.
But there is more. We have already seen Samarco restart with a gradual increase to 8mt capacity. We can expect perhaps 10mt iron ore equivalent of imported Chinese scrap steel displacement in 2021 and more in 2022 as import bans are lifted and the green steel push accelerates.
Then we’ll see steel demand soften to zero in H2 as China slows and shifts its growth pattern. That will knock any Chinese restocking pulse on the head, which has been running at about 20mt per annum.
Being generous, we can expect perhaps 30mt of returning seaborne iron ore demand everywhere else, including China.
So that’s a bearish 70mt tonne swing in the iron ore market balance by Q4 before I have dug into what astronomical prices are doing to incremental supply everywhere else.
It’s more of the same in 2022 as Vale brings another 20mt in 2022 and FMG 22mt.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.