By Ulf Bergman
The Australian government is anticipating the country to export a record-breaking AUD 136 billion (USD 104 billion) worth of iron ore in the financial year ending in June, as the world’s steel production recovers in the wake of the pandemic. The optimistic projection comes despite a decline in the exports of metalliferous ores, which mostly mean iron ore, in February, with a month-on-month decline of almost six per cent. However, compared to a year ago the value of the exports in February was, hardly surprising, up by a hefty 60 per cent, as the baseline was distorted by the accelerating pandemic. The decline in exports of iron ore last month was largely driven by a twelve per cent reduction in volumes being shipped to China, which, despite a decrease of just over five million tonnes, accounted for three-quarters of the market for the Australian output. The fall in iron ore exports also meant that February marked a twelve month low.
In the report, which was published on Monday, the Australian government also expects iron ore exports to remain strong in the coming years, with volumes rising from this year’s 900 million tonnes to 1.1 billion tonnes by the 2025–26 financial year. The strength of the iron ore market is not expected to be matched by the coal trade, as decarbonisation efforts are likely to lead to a demand reduction in the longer term. The report is however suggesting that increasing demand for new energy materials, such as copper, lithium and nickel, will offset lower export contributions from thermal coal, as the global decarbonisation drive gathers pace. Australian coal exports have also already been badly affected by the Chinese import ban, with February’s receipts almost twenty per cent below the levels for the same month a year ago. In light of the Chinese embargo, Australian coal producers have developed alternative export markets further afield, instead of nearby China. Hence, coal exports have regained some of their lost ground, with shipments of both thermal and coking coal increasing in February and registering the best month since June last year.
The bullish projections for Australian iron ore exports are perhaps somewhat at odds with the recent Chinese customs data, which suggests that Chinese purchasers may have been directed towards Brazilian producers. The combined data for the first two months of the year saw Chinese imports of iron ore increasing by almost three per cent compared to the previous year and customs data suggest that much of the growth was covered by cargoes from Brazil. It is too early to say if the data for the first two months are representing a permanent change in trade patterns, with Australian iron ore exports facing the short end of the stick. However, China’s ambitions to diversify supplies and decrease its dependency on the global supply chains are well documented, with major investments in Guinea’s burgeoning iron ore mines underway. Also, the ongoing trade and diplomatic frictions with Australia do not look like they are going to be resolved anytime soon. Hence, the optimistic assessment of the future of iron ore exports by the Australian government may suggest that they see the potential for growth elsewhere in the world, with longer distances involved.
A development towards iron ore cargoes having to travel further to reach their buyer due to political considerations is good news for owners of dry bulk vessels, as the longer voyages will tie up the tonnage for longer and reduce the supply. With the order books in the shipyards at their thinnest for many years and scrap prices on the rise, there is very limited risk that we would see a rapidly expanding global dry bulk fleet at this stage. It is also interesting to note that there have been similar moves in the bauxite trade, with Chinese buyers increasingly looking in the direction of Guinea for their supplies instead of Australia and adding additional upward pressure on the tonne-mile demand as a result. Thus, a healthy environment for freight rates.
Geopolitics, like weather and infrastructure bottlenecks, can cause frictions and inefficiencies in the global supply chains. This may not be good news for consumers or manufacturers, but shipowners and freight rates can often benefit from such circumstances.