Miner BHP expects iron ore price volatility to be driven by uncertainty around the re–emergence and containment of COVID–19 outbreaks, and seaborne supply uncertainty from Brazil and other markets.
With reference iron ore prices marking a fresh multi-year high in August at close to $130/dry mt CFR China, spot lump and pellet premiums have weakened.
"Seaborne supply conditions for this calendar year and next are highly uncertain, both in aggregate and in terms of quality profile," BHP said in an Aug. 18 outlook report.
The company noted major iron ore exporter Brazil is struggling with one of the world's most severe outbreaks of COVID–19.
Supply is still recovering after the Brumadinho tailings dam disaster in January 2019 which was followed by mining reviews and checks, and changes to processing.
Due to COVID-19 and other local factors, iron ore exports from South Africa, Peru and smaller Brazilian miners are all running behind their respective 2019 levels, BHP's analysis showed.
The current constraints on Brazilian iron ore exports may see a normalization over several years, BHP said.
"The inevitable ups and downs of the path back to a more stable and predictable Brazilian export performance can be reasonably expected to generate volatility in both index and product pricing," said BHP analysts led by Huw McKay, vice president for market analysis and economics.
Relative differentials for Brazilian high-grade IOCJ fines from Vale, along with concentrates and pellet feeds, have been hit as prices rise.
This is due to slimmer steel mill margins and higher demand for high grade and direct charge iron ores outside China.
BHP estimates much of the global market tonnage growth last year, in response to high prices after the Vale disaster, may be lost due to the coronavirus hitting mines and logistics.
One bright spot is India, where iron ore exports have increased as domestic steel demand was hit during the county's prolonged lockdown.
BHP continues to expect long-run iron ore prices to be set by a higher–cost, lower value–in–use operation in Australia or Brazil, withstanding the increased likelihood of new supply from West Africa.