Iron Ore is one of the most well-known, exploited and needed metals in the world. Australia, Brazil and China are the world's largest producers of the metal, the first two focused on supplying the international market and China producing mainly to supply the local steel industry.
Iron mining has great economic importance in Brazil due to the resources invested and financial returns involved.
According to IBRAM data, China is the destination of 64.5% of Brazilian iron ore exports. In this sense, the main use and demand for iron ore is steel production, which justifies the close relationship of this market with China, the largest steel producer in the world (USGS, 2017).
If you are interested in this subject, read this content to the end. In this material we will talk about Iron Ore, main producing companies, market value and factors that influence the production of this mineral good.
Iron Ore in Brazil
Brazil is one of the main producers of Iron Ore in the world , the deposits found with potential for exploration and those with active mining attract millionaire investments every year.
Vale is the world's largest producer of iron ore and pellets, essential raw materials for steelmaking. Carajás is the company's largest operation, located in northern Brazil. Carajás ore is considered the highest quality iron ore in the world, which is one of the factors that ensures the commodity stands out in the country.
Currently, the main iron ore producing companies in Brazil are :
For some years now, iron ore has been the flagship of Brazilian mining, being the main commodity produced in the country. In 2019, for example, iron ore was responsible for 72.8% of Brazil's mineral production, a figure that proves the importance of this metal.
In 2021, between January and July, iron ore was responsible for revenues of 107.5 billion reais, around 135% more when compared to the same period in 2020. However, in recent months there has been a steep drop in the price of this substance.
Thus, Iron Ore presented a very positive scenario in the first half of 2021. However, the commodities market is strongly affected by the global economy and the production of its main buyer, China . In this sense, the economic context for the metal is changing in the second half of the year. Let's understand a little more about this?
Factors that influence the price of Iron Ore
The term commodities comes from the English language and, in the literal sense, means “merchandise”. Commodities are global consumer goods and, therefore, are traded all over the world.
Some examples of commodities:
- Agricultural: Soy, wheat, coffee.
- Mineral: Oil, iron ore, gold.
- Financial: dollar, euro, real.
The variation in the prices of a commodity can occur due to several factors. Speaking specifically about the mineral sector, we can list the following scenarios:
- Demand and supply;
- Project feasibility;
- Beneficiation;
- Transport;
- Political factors;
- Consumer perception;
- Competition with other minerals or materials;
Demand and supply
When demand for a product is much greater than its supply, its value on the market tends to rise and when the opposite occurs, that is, its supply is much greater than demand, it is natural for its price to fall.
Project feasibility
The set of operations that range from the extraction of the ore to its processing are very important in defining the value of the commodity to be mined.
Furthermore, in this planning it is important to take market demand into account, that is, a mineral that the market is not interested in is not produced.
Beneficiation
Beneficiation consists of a set of operations that transform the extracted ore into raw material for industry. These operations increase the mineral content; the higher the content, the higher the price.
Transport
The acquisition and maintenance of equipment, loading and unloading time and average transportation distance are conditions that vary from ore to ore and affect the final price of the merchandise.
Political Factors
Administrative procedures, the ease of export determined by international relations, port tariffs and even the legislation of the exporting country contribute to the variation in the value of the mineral commodity.
Consumer perception
In addition to selling the mineral, the company must produce it with quality and responsibility. Factors such as the mining method, processing, environmental impact and social impact are determining factors in the consumer's perception of the company/product.
Competition with other minerals or materials
Some minerals can be replaced and, therefore, it is not interesting to invest in their extraction, processing and sale.
Variations in the price of Iron Ore throughout 2020 and 2021
As mentioned in the topic “Factors that influence the price of Iron Ore”, supply and demand are extremely important in determining the value of a commodity on the market.
This factor was one of the main ones that drove the fluctuation in the price of Iron Ore throughout 2020 and 2021.
Iron Ore in 2020
Since March 2020, when the pandemic began in Brazil, the price of iron ore has fluctuated and reached historic highs . This turnaround in the economy, which had not happened since 2000, occurred due to the reduction in supply caused by the crisis.
In times of crisis, governments resort to investing in infrastructure in order to stimulate economic growth and recover lost jobs. During the pandemic, considered a global crisis, the demand for steel increased and, consequently, so did the demand for iron ore.
After about a decade with little investment, low stocks and devalued prices, in the second half of 2020 and early 2021 iron ore began to be intensely requested by major global players.
In the first half of 2021, the product appreciated by almost 40% and reached a record price of US$220/ton in May. These figures were possible due to the intensification of purchases made by China and the United States, two of the largest consumers of iron ore on the planet.
However, the commodities market is quite sensitive, which causes the price to fall quickly when changes occur in the consumer market (Figure 3).
Iron Ore in 2021
Iron ore prices began the second half of the year falling. In August, the metal was unstable and in September it depreciated by more than 50% compared to May (the month in which it had the highest value of the year). This significant drop affects Brazilian mining and steel companies, which are experiencing a decline in the stock market.
Some factors were responsible for the change in the commodity's economic scenario in recent months, two of which are directly related to China:
- Decrease in the rate of steel production. The goal is to reduce carbon emissions in the country and maintain production similar to that of 2020;
- Reduced energy use in the southwest of the country due to shortages amid hot weather. As a result, steel mills operating electric furnaces have reduced production.
Overall, the two conditions necessary for a pullback in iron ore have been met, increased supply and reduced steel production.
With a slowed production rate, stocks remain stable, supply on the market increases and consequently the price of the commodity is affected.
See the table below for variations in the price of Iron Ore since August 2020.
Containing iron ore prices remains a priority for the Chinese market, indicating that steel production cuts are likely to continue throughout the second half of 2021 (Figure 4). This means that during July-December, there is a downward trend in China’s crude steel production (spglobal).
Furthermore, another concern in the financial market is the crisis at the construction company Evergrande , considered the second largest in the Chinese market. It is estimated that the debt is over US$300 billion , which the real estate giant does not have the resources to pay. In this sense, the risk of default threatens the price of iron ore , since the sector is one of the main consumers of this commodity. This contributes to the slowdown in imports from China of the metal produced in Brazil. There is still a climate of uncertainty about the consequences of this crisis. However, the drop in the share prices of the main Brazilian companies exporting iron ore is already noticeable , such as Vale, which accumulated a 5% drop on September 20.
We are closely monitoring these changes, as they directly impact the production and export of iron ore in Brazil.
And you, what do you expect from the iron ore market in the coming months and for 2022? Share your opinion with us!
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