Global iron ore production will modestly grow to 3,119 million tonne by 2028 from 2,850 million in 2019, Fitch Solutions Macro Research said in a report today. This represents an average annual growth of 0.5 per cent during 2019-2028, which is a significant slowdown from an average growth of 2.9 per cent during 2009-2018, it said.
The supply growth would be primarily driven by India and Brazil where major miner Vale is set to expand output with its new mine. On the other hand, miners in China, which operate at the higher end of the iron ore cost curve will be forced to cut output due to fall in ore grades.
India's iron ore output growth will be supported by the removal of export taxes announced in the Union Budget for low-grade ores and the country's Mines and Minerals (Development & Regulation) (MMDR) Act, which will streamline licensing and reopen closed mines.
Although the MMDR Act will support ore output growth, the royalties included in the Act will limit the sector's overall growth potential. As part of India's 2016 Union Budget, export duty on iron ore lumps and iron ore fines with iron content below 58% were reduced to zero from 30 per cent and 10 per cent respectively.
This reduction was aimed at boosting shipments from Goa where the Supreme Court lifted an earlier iron ore mining ban. However, the decision by India's top court to cancel all iron ore permits in Goa in February 2018 will mean that production from that state is likely to drop this year rather than increase.
As a result, we forecast India's iron ore output to grow to 241 million tonne in 2028 from 230 million in 2019. This represents an average annual growth of 2 per cent during 2019-2028 period, greater than the 0.9 per cent YoY growth witnessed between 2009-2018.
In terms of demand for ore, China will lead the global slowdown over the long-term, although in the short-term demand will be buoyed by renewed government support to the economy on the back of the re-escalating trade war with the US.
In the long-term, China's iron ore imports will slow with the country's economic growth shifting its focus from heavy industry towards services. Chinese domestic demand for steel will slow from 2020 onwards in general as construction and infrastructure projects will decrease with the easing of government fiscal support. This will lead to an easing of steel prices and hence production, said the report.