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.
As part of broader efforts to stimulate the economy and improve the investment climate, President Michel Temer’s government has prioritised attracting greater private investment in the mining sector. Since assuming office in May, Temer has reshuffled personnel and prioritised efforts to create more opportunities for private companies. In November, the government opened bidding for mining projects in Pernambuco, Paraiaba, Rio Grande do Sul, Goias and Tocantins states as part of a larger infrastructure concession programme. The administration hopes to build on this over 2017, when mining agency National Department of Mineral Production (DNPM) plans to sell some 22,000 mineral exploration rights across Brazil. In addition, the government also plans to offer nine strategic mining concessions in 2017. This flurry of activity follows the appointment of Eduardo Ledsham, a former top official at Brazil-based mining giant Vale, as head of the geologic survey mineral geological survey agency (CRPM).
Despite an ambitious agenda to create more investment opportunities, the government has acknowledged the need for further reforms to attract higher levels of investment. In an interview with Reuters published in October, Ledsham said that Brazil’s mining sector had been frozen since 2012 and that his goal was to bring about more transparency and greater certainty to reassure investors. The CRPM chief noted that Brazil had around 30 percent of the mining investment per square kilometre of mining giants Canada and Australia. Lower levels of investment and activity in Brazil stem in part from regulatory concerns, including an outdated mining code and political uncertainty related to far reaching corruption scandals, structural economic challenges and political deadlock.
Political realities will make it difficult for Temer to resolve the country’s deeper challenges, but his administration has made some progress in removing obstacles to greater private investment in key sectors, including in oil and gas where Congress voted in October to relax rules on state oil company Petrobras’ participation in offshore projects. In the mining sector, the government has also backed specific reforms. For example, CRPM head Ledsham has pledged to simplify rules for acquiring mining licenses and to improve coordination between his agency and DNPM, steps that would address key concerns raised by mining companies. The government has also said it supports introducing a new mining code, but previous attempts to introduce new legislation have been stalled for several years due to political and industry resistance. A new mining code was drafted under President Dilma Rousseff, but the current administration has said that that version was too focused on increasing the state’s share of revenues and has called for it be rewritten to focus on incentivising investment.
Although the Temer administration has established solid pro-business credentials, any attempt to carry out an overhaul of the mining sector would increase the level of uncertainty facing investors. Moreover, the outcome of such a process is not guaranteed given the current political situation. Temer’s pro-businesses reforms are popular with investors, but his economic policies have provoked mass protests and strikes while his personal unfavorability rating rose to 52 percent in October according to pollster MDA. The president and a number of senior figures in government and Congress have been implicated in corruption scandals that could eventually make their positions untenable.
As such, the long-term prospects for the current administration are uncertain and the persistent cycle of political crises facing the government will only add to the complexity of an already challenging process to rewrite Brazil’s entire mining code. Any process to draft new mining legislation will be influenced by lingering resentment over the deadly collapse of a dam at the Samarco mine in November 2015, which could make it difficult for lawmakers to resist pressure to enact tougher environmental and safety requirements on the industry. In the important mining state of Minas Gerais, where the Samarco disaster took place, officials have called for greater oversight at the national level and activists have said existing regulations rely too heavily on self-reporting by industry. Based on the current political climate, a more effective approach may to be focus on specific terms or areas of the code, as Congress has already done in oil and gas, rather than reworking the entire regulatory regime.
