Demand for iron ore should remain strong despite the threat of higher scrap use and tepid Chinese demand, according to trading house Trafigura. The company saw profit margins squeezed in financial year 2018, Kallanish notes.
In its financial year ending September 2018, Trafigura traded 16.9 million tonnes of iron ore, more than double the 8.1mt it traded the previous year. Growth was driven by a focus on the domestic Chinese market, where Trafigura has been buying from port stocks and selling to around 130 inland steel mills.
The company also saw its part-owned Porto Sudeste export terminal export 9.5mt of iron ore, flat from the previous year, including around 1.3mt of its own sinter feed. It expects this to allow it to further ramp up export volumes from its mine investments in Brazil’s Minas Gerais.
So far, however, increased mining activity has been complicated by a slow permitting process. Trafigura is producing from its Mineração Morro do Ipê mine but is still securing permits for its Tico Tico mine. Tico Tico is planned to produce some 5.3m t/y of high-grade pellet feed. The trader owns 37% of the mines and 49.5% of the port.
Although iron ore benchmark prices were very stable after the first quarter of calendar 2018, there were more opportunities in high-grade ores, particularly lump and pellet, Trafigura notes. This was driven by very strong Chinese steelmaking margins and government clampdowns on sintering.
Consolidation of capacity at larger and more efficient blast furnaces, combined with a shift upwards in utilisation rates globally, means both iron ore demand and especially demand for premium products should remain firm. Trafigura also notes, however, that China’s iron ore imports actually fell during the year because of a run down in port stocks and the increasing use of scrap.
In the 12 months to September 2018, Trafigura saw revenues grow 32.48% to $180.7 billion, while gross profits grew 9.09%% to $2.4 billion. Ebitda was only up 6.25% to $1.7 billion.