Australia-headquartered global miner BHP is expecting iron ore demand from China to be lower than current levels in the second half of the decade (2025-2029) as crude steel production plateaus and the scrap-to-steel ratio rises, the company said in its half-yearly report.
The company said that iron ore prices have been elevated since the disruption in the market due to the Brumadinho tailings dam tragedy in Brazil in 2019. The demand was very tight in the second half of 2020. The combined impact of very strong Chinese Pig iron production and Brazilian exports being unable to lift materially from depressed levels in 2019 outweighed record shipments from Australia.
The company further said that its analysis indicates that before prices can correct meaningfully from their current high levels, one or both of the Chinese demand and Brazilian supply factors will need to change materially.
In the long-term, iron ore prices are expected to be determined by high-cost production on a value-in-use adjusted basis from Australia or Brazil. The company is also expecting quality differentiation to remain a factor in determining iron ore prices in the coming period.
Steel prices
The company said that global crude steel production was unbalanced in 2020, with strong growth in China offset by a steep
fall globally. It noted that the momentum has been picking up markedly, with average utilization rates now close to pre-COVID levels, while margins are benefiting from higher prices.
The company is anticipating a continuation of strong steel demand in China and ongoing recovery across the globe in 2021.
In the long term, BHP said that it expects that global steel production will grow at a similar rate to population growth in coming decades, with a plateau and then a slow decline in China offset by growth in the developing world, led by India.
The company expects growth in Pig iron to trail the growth in steel, principally reflecting the higher long-term proportion of steel sourced from scrap.
The efforts to decarbonize steel making are expected to proceed at different rates in different regions, based on the availability of lower carbon raw feedstock (including but not exclusively scrap), the age of existing facilities, variable levels of policy support, net trade positions, and differential demands for affordable steel, the company said.
Nickel prices
BHP said that nickel prices have been driven by positive sentiment towards pro-growth assets, supply uncertainty, and a strong
rebound from the growth of the electric vehicle (EV) battery sector in the H2 2020.
In the longer term, the company believes that nickel will be a substantial beneficiary of the global electrification mega-trend and that nickel sulfides will be particularly attractive given the relatively lower cost of production of battery-suitable class-1 nickel than for laterites, which are expected to set the long-run nickel price.
The company said that it has revised its already aggressive long run EV ranges to reflect even more supportive policy, such as accelerated bans for internal combustion engine vehicles in Europe, the policy platform of the Biden administration, and net-zero objectives in China, Japan, and South Korea.
Copper prices
BHP said that copper prices have been strong in the last few months. With global demand recovering and China continuing to perform well, the short term outlook for copper demand is constructive.
The company, however, said that there could be disruptions on the supply side as COVID-19 cases are increasing in Chile and a number of wage negotiations at Chilean mines are scheduled in 2021. In the long term, the demand for copper is expected to be solid, while broad exposure to the electrification mega-trend offers an attractive upside.
The long-term copper prices are expected to also reflect a grade decline, resource depletion, water constraints, the increased depth and complexity of known development options, and a scarcity of high-quality future development opportunities after a poor decade for industry-wide exploration in the 2010s.
Spence copper mine to reach full capacity
BHP’s Spence copper mine in Chile will reach its full copper production capacity of 300,000mt per annum till 2026 within 12 months of expansion, the company said in a statement.
The company is expecting the first copper sales from the new Spence concentrator in the first quarter of 2021.
The company has built a new, $2.46bn concentrator plant in Nothern Chile that can process 95,000mn of raw material per day, extending the life of the facility by over 50 years.
BHP’s total copper production in H1 FY21 (July 1, 2020-Dec 31, 2020) stood at 841,000mt, down by 5pc from the same period in the prior year due to the adverse impact of the COVID-19 pandemic.