Iron ore exports in low gear over January-April, need to ramp up: Platts Analytics

Melbourne — Most major iron ore producers fell behind on their export guidance on an annualized basis over January-April which, along with a slow start to May, indicates potentially ongoing weak supply in 2021, according to S&P Global Platts Analytics.

Brazil's Vale shipped 80.9 million mt over the first four months of the year at an annualized rate of 246 million mt/year, according to analysis using cFlow, Platts trade-flow software. Vale provides production rather than export guidance and is targeting output of 315 million-335 million mt in 2021. Platts Analytics estimates that Vale will sell around 23 million mt of this amount to domestic customers, meaning it is well below the run rate target required for the export component.

In the first week of May, Vale's exports slumped 35.13% week on week to 3.82 million mt, lower than the average rate of 4.62 million mt over the four previous weeks, cFlow analysis found.

In Australia, operational issues, wet weather and a shortage of workers in the Pilbara contributed to Rio Tinto's weak export performance over January-April. The Anglo-Australian miner shipped 80.9 million mt in the first four months of 2021 at an annualized rate of 311.6 million mt/year. Rio Tinto is targeting exports of 325 million-340 million mt this year, indicating throughput will need to increase markedly over the rest of the year to reach the upper end of guidance. At the start of May its exports were down around 1% from the week before, according to cFlow.

BHP and Fortescue Metals Group both work to a financial year ending June 30, so are likely to significantly step up shipments in May and June to optimize revenues, particularly at a time of record prices. Though exports over January-April were down on July-December, both miners appear on track to meet guidance.

Over July-April, BHP shipped 235.8 million mt at an annualized rate of 283.1 million mt/year. Its annualized rate in January-April was lower at 277.30 million mt/year. It is targeting exports of 276 million mt-286 million mt for the 12 months to end June.

Fortescue shipped 142.2 million mt over July-April at a rate of 170 million mt/year, while its annualized run rate in the period was 168 million mt/year. The Perth-based company is targeting 175 million-180 million mt for the fiscal year to June 30.

Roy Hill and Anglo American Kumba are also slightly off the pace at the moment, producing at an annualized run rate of 57.7 million mt/year and 37.6 million mt/year, respectively. This is versus targets for the calendar year of 60 million-62 million mt and 40 million-41 million mt.

Exports from Port Hedland in Western Australia have provided further evidence of the lack of supply growth this year. Total January-April exports of 171.43 million mt were flat on the same period of 2020, Pilbara Ports Authority data shows.

The weak iron ore export performance this year has contributed to rising prices, particularly in relation to a shortage of specific products. Iron ore port stocks stood at just over 130 million mt on May 7, down around 3 million mt from a fortnight earlier, CEIC data shows.

Steel market bullish for May

Chinese mills continue to pass on the higher input costs to their end customers, as evidenced by soaring mill margins. Chinese domestic hot-rolled coil margins jumped by $70/mt in the space of a day on May 10 to reach a record $270.60/mt, despite the sharp increase in iron ore prices, Platts Analytics data shows.

China's mill margins include a three-week lag for iron ore, so the $200/mt and above costs will be felt around mid-May. But mills are meeting some resistance to continually pushing up prices from downstream customers such as manufacturers and pipe makers. In some cases, they are unable to procure steel at such high prices.

This scenario will likely cause steel prices to start easing in June and July, which are seasonally slower months.

However, the outlook for China's steel sector in May was extremely bullish.