Commodity Markets In 2020
Nickel
International studies revealed that in late August 2019, Indonesia announced it was bringing forward an export ban on nickel ore (grade less than 1.7 percent) from 2020 onwards instead of the initial deadline of 2022. Mining firms were seen to be increasing their ore exports considerably, and investments into the processing sector were somewhat lacklustre. Indonesia is a main nickel ore supplier to China, exporting around 15 million tons of ore (+36 percent YoY) over the first 9-month of 2019. Indonesia’s share of Chinese nickel ore imports is around 38 percent, slightly below the top supplier Philippines of around 58 percent. The ban on Indonesian exports would create a short-term supply gap for the nickel market, chiefly to China as it had increased large-scale capacity down the supply chain from NPI (nickel pig iron) to stainless steel. The studies also identified that Indonesia’s rationale for the ban was to encourage investments towards downstream sectors.
Over the last couple of years, the industry has seen a surge in investment into Indonesia from ore mining, NPI to stainless steel as well as HPAL (High-Pressure Acid Leaching). And a large chunk of that investment comes from overseas. That’s evidenced by the growing exports of NPI. These could increase from around 260kt in 2018 to around 360kt in 2019 and further to 500+kt in 2020 as Tsingshan and Antam, among others, add capacity. Nevertheless, the supply gap to the Chinese NPI industry remains unresolved despite prebuilt ore stockpiles, and this may start to lead to a curtailment in Chinese NPI sectors as inventories run down. If circumstances change again and Indonesia really does stick to the ban from the beginning of 2020, the market will begin to feel tightness towards the second half of 2020. The nickel market is set to see a marginal deficit over 2020 if Indonesia sticks strictly to the ban. It’s hard to stick to a single baseline forecast. The Experts believe that price volatility will remain high. The reason is deeply rooted in an industry which has been reshaping itself both regionally and structurally, and which has partly resulted in an issue in the pricing mechanism.
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Iron
Iron ore supply should normalize in 2020 after a standout 2019. It was one of the commodity outperformers because of supply disruption and relatively healthy demand. Iron ore prices did soften in the second half of the year. It is also reported that around 48 million tpa of capacity has restarted or has been approved to begin again out of the 90 million tpa of capacity that stopped after the dam incident; the rest of the 42 million tpa capacity will restart by 2021. Meanwhile, the company continued to ramp up output at the giant S11D mine with production up 28.3 percent YoY to 54.1 million tons over the first three quarters of 2019. It could increase production and reach full capacity of 90 million tpa in 2020. The Samarco mine, closed since 2015 after an incident, has received all approvals to restart operations and production could well resume later 2020 with around 8-10 million tpa of capacity. In Australia, ore exports dropped around 1percent YoY to 828 million tons in 2019, mainly because of disruptions in the first quarter of 2019. They’re predicted to recover in 2020 on the back of increased production at some new and existing mines. Australia’s Department of Industry, Innovation and Science forecasts Australian iron ore exports to increase greater than 4 percent year-on year to 862 million tons in this year. With those forecast restarts now in the pipeline, the studies expect the ore supply to normalize over 2020. Presently, the experts anticipate production from the big four to grow by around 9 percent YoY in the next twelve months (2020). As a consequence, seaborn supply to China is probable to continue improving. And it is also seen that reflected in the total China ports’ inventory, which has grown by more than 12 percent since the lows in June. China’s domestic iron ore production is also contributing to the supply side; it’s grown fairly strongly, by 6.5 percent YoY, to 712 million tons in the first 10-month of the year.
Furthermore, data from the World Steel Association shows that worldwide steel production increased 3.9 percent YoY to 1,391 million tons over the first 9-month of 2019, which has kept iron ore demand steady during the year. However, the outlook for 2020 is not as optimistic with the Association estimating global steel demand to slow down to 1.7 percent YoY. Chinese demand growth is set to slow from 7.8 percent in 2019 to just 1 percent in 2020. China’s total steel production exports already fell by around 5 percent YoY in the first nine months of 2019. That said, the experts expect average prices to be weaker next year with intra-year prices’ formation becoming softer towards US75/t by the end of 2020.