Covid-19 impact on iron ore market - report

(Image courtesy of Rio Tinto.)

The mining industry is deeply impactedby the covid-19 pandemic, and the situation continues to evolve as the virusspreads throughout the globe.

In its latest report on the coronavirus impact on the iron ore market, Fitch Solutions has revised down most of its 2020 mining and metals production and consumption forecasts and warns it will keep adjusting estimates in the coming weeks.

However, Fitch analysts maintain their iron ore price forecast for 2020 at $85/tonne, as prices remain resilient despite the covid-19 backdrop that has resulted in the decline of other metal prices.

After averaging $90.4/tonne in2019, iron ore prices have averaged $83.5/tonne in the year to date and arecurrently hovering around $81.8/ tonne.

Fitch expects prices to further recover from spot levels in H220 as steel production in China gears up.

Analysts expect stronger steel production by H220 to sustain iron ore demand and support prices

Analysts have made downward revisions to their iron ore production forecasts across multiple countries.

Fitch forecasts iron ore production to grow by 0.8% y-o-y in 2020 compared with 4.7% y-o-y in 2019, as a result of government lockdowns around the world causing operational disruptions.

Supply has been disrupted in H120so far by forced mine shuts in Canada, South Africa, Peru and India, andseasonal weather also impacted Brazil and Australia.

Chinese domestic iron ore hasbeen impacted by logistical issues, which has temporarily increased China'sdemand for seaborne iron ore in Q120.

On the demand side, analysts expects stronger steel production by H220 to sustain iron ore demand and support prices.

"In Q120, steel production inChina averaged 3.6% y-o-y, compared with 7.7% in 2019, and we expect growth topick up pace by H220 and average 5.0% y-o-y in 2020. Europe steel demand willbe weak in Q220 and could drag iron ore demand lower as well should companiesdeclare force majeure."