Iron ore weakness to continue into 2025 and beyond, says Fitch Solutions’ BMI
Looking beyond 2024-2025, BMI analysts maintained their view that iron ore prices will likely follow a multi-year downtrend.
The giant mine in Bayan Obo, Inner Mongolia near Baotou City, produces the bulk of the world’s rare earths and does so as a byproduct of iron ore mining. | Source: NASA
In order to crack down on illegal mining, pollution and modernize the country’s mostly low-tech industry China consolidated its rare earth industry under six large organizations in 2014.
By far China and the world’s leading rare earth producer is China North Rare Earth Group Co (formerly Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co).
CNRE’s giant mine in Bayan Obo, Inner Mongolia near Baotou City, produces more than the rest of world’s rare earths mines combined and does so as a byproduct of iron ore mining. The 470 million tonne iron deposit was discovered in 1927 and REEs a decade later. According to some estimates Bayan Obo boasts 70% of the world’s proven REE reserves at more than 40 million tonnes.
After consolidating five rare earth separation and refining businesses little over a year ago CNRE has a combined rare earth processing capacity of 73,500 tonnes per year. That compares to 2014 total global mine production of roughly 110,000 tonnes (total illegal mining is put as high as 40,000 tonnes).
The price of iron ore fell back to below $40 a tonne on Thursday, a level last seen in 2007 and down 8% already in 2016 following a near 40% decline last year. The flood of cheap new supply, mainly from Australia and Brazil have hit smaller producers hard, but domestic Chinese mines which struggle with low grades (only around 20% Fe) and high production costs have been most affected.
According to some estimates around 8% of domestic Chinese iron ore mine production exited the market in 2015. With little prospects of a recovery in prices roughly the same reduction in output is expected this year.
Melanie Debono of Capital Economics says lower iron ore output which would cut into REE production (specifically the light REE cerium) along with ongoing consolidation of China’s REE industry and a renewed crackdown on unsanctioned mining “should keep a lid on new supply” from China.
Capital Economics believes a 6% increase in demand, particularly from the catalysts and permanent magnets sectors, in 2016 should help lift cerium prices. Demand from Cerium’s main application, polishing and colouring glass, should rise by 4%.
As the industry bellwether a solid cerium price means other more valuable, but less abundant rare earths can also be mined profitably by improving the economics of projects as whole. And cerium together with neodymium, Bayan Obo’s other main product, account for more than 50% of total demand.
Capital Economics is optimistic about the outlook for cerium and and forecast the price of cerium oxide (in FOB China terms) to recover over the course of the year from today’s $1.68 per kilogram to $2.50 and to $4.50 by end-2017.
According to The Association of China Rare Earth Industry the price index for the 17 elements have fallen back to levels last seen in 2010, before China’s imposition of export quotas (scrapped last year along with export tariffs) led prices to skyrocket. But to put today’s price in perspective, cerium reached $150 a kilogram in 2011.
