Fitch expects the 62% Fe benchmark iron ore price to fall below $100/tonne going into 2021, but the iron ore market will remain tight in 2021 and possibly 2022. Ore supply will be stronger in the second half of 2020, following H1 disruptions, but port congestion in China is delaying restocking.

“Chinese steel production has most likely reached a high in 2020, with inventory build-up suggesting that real consumption has not kept pace with production and some capacity closures that are linked to the government requirement for 60% of steel capacity to meet ultra-low emission standards by end-2020,” Fitch says in a report. “A slow recovery in seaborne markets such as Europe, Japan, Korea and Taiwan will compensate and slowly increase demand.”

Fitch expects Vale to ramp up production from an estimated 310 million t in 2020 to around 380mt in 2022. This requires a number of projects linked to tailings facilities to be completed and signed off by the Brazilian Mining Authority, a process that may take time due to increased scrutiny from authorities following the Brumadinho and Mariana dam disasters.

A new wave of the pandemic in 2021 could however mean higher worker absenteeism at Vale’s operations, affecting either production or progress with capital expenditure required for the ramp-up, Fitch adds.

Taking into account high base metals and iron ore prices in the third and fourth quarters, Fitch has attributed a stable outlook to the global mining sector. 

“There remains a risk of pandemic-related supply disruptions and slower-than-forecast economic growth across the globe, but any downsides in 2021 would be moderate compared to the impact on industrial activity in 1H20,” concludes Oliver Schuh, Fitch Lead Analyst Metals & Mining.