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Metals 17 Feb 2020 | 18:15 UTC London
Market seen tight again this year
Analyst Christopher LaFemina of international brokerage Jefferies said that for Rio, the negative impact of lower-than-expected volumes should be more than offset by the positive impact of higher-than-expected iron ore prices, as the iron ore market is expected again to be tight this year.
While the coronavirus has clearly hit Chinese demand for iron and steel, and Chinese imports account for 72% of seaborne iron ore demand, the impact of this fall in demand has been mitigated by the closure of China's own mines, which account for about 20% of China's iron ore supply, LaFemina said. "The supply shock of the closure of these mines is at least partially offsetting the demand shock relating to the coronavirus," he said.
"Our above-consensus forecast of $85/mt for benchmark iron ore fines compares to the current spot price of $90/mt and is conservative, in our view. Consensus estimates are simply too low," according to the Jefferies analyst.
BMO Capital Markets currently forecasts Pilbara shipments of 337 million mt in 2020.
"Although the company has not commented on the impact on operating costs and capex, we expect the company's maiden Pilbara unit cost guidance on February 26 is likely to reflect the impact of the cyclone disruptions. We currently forecast a unit cost of $14.20/mt for 2020," BMO analyst Edward Sterck said.
"Our preliminary analysis suggests that lower volumes are likely to impact Rio's 2020 EBITDA by 3%-5%. However, lower seaborne volumes, with Vale...also lowering Q1 shipment due to weather-related issues, could help to keep iron ore prices at elevated levels above our forecasts, at least in the short term."
Vale last week announced its guidance for iron ore fines production in Q1 was revised to 63 million-68 million mt from previous estimates of 68 million-73 million mt. This followed a fall in its 2019 fines output to 302 million mt, down 21.5% from the previous year as a result of the Brumadinho tailing dams collapse.
The giants iron ore producers will not easily let the prices go down.
"Rio Tinto has trimmed its 2020 iron ore shipments guidance"
https://www.spglobal.com/platts/en/market-insights/latest-news/coal/021720-rio-tinto-trims-iron-ore-guidance-market-sees-price-support
China’s steel, iron ore futures rise after rate cut
By RECORDER REPORT on February 22, 2020
https://www.brecorder.com/2020/02/22/573661/chinas-steel-iron-ore-futures-rise-after-rate-cut/
I don't think it is plain sailing just yet. The Coronavirus is still not under control in China, and the effect on the economies of the Far East might be significant, leading to a much reduced demand for base metals. This will surely effect the debt rating of IRC and thus make any attempt to monetise the POG holding and/or exit the loan guarantee that much more difficult.