Decarbonisation, green capital expenditure (capex), and conservative investment by the mining giants are expected to support the iron ore and steel bull markets, according to Nicholas Snowdon, head of base metals and bulks research of Goldman Sachs, Kallanish learns at Singapore Iron Ore Forum (SIOF) 2021 held on 13 July.
Decarbonisation, required by governments, is expected to bring steel demand for new equipment, while output will be under pressure from the move towards net zero emissions. Output will be controlled despite rising global steel capacity and therefore, probable tight supply and new demand can support steel markets, Snowdon believes.
In terms of green capex, environmental policies will drive a capex boom on par with the 1970s and 2000s. Heavy investment is necessary for countries to achieve carbon neutrality. Commodity prices and capex hitorically have roughly the same trend, Nicholas stated.
Although iron ore bull market has entered its third year, global supply/demand balances suggest no material surplus until 2023/24. Meanwhile, the commitment of miners to long-cycle mining developments is falling. The combined mining capex of Glencore, Anglo American, Rio Tinto, and BHP has only recovered to a third of levels a decade ago, and is expected to maintain this level to 2025. Expectations of supply expansion are therefore weakened.
Several speakers also agreed that iron ore prices will continue to be high before next year. “China’s demand for high-quality iron ore that has over 62% Fe will be still strong in the fourth quarter,”said Tracy Liao, vice president of commodities strategy at Citi.
By Kallanish Team