Iron ore was a game of two halves in 2021. There’s reason for both pessimism and optimism in 2022
If ever there was a game of two halves it was iron ore in 2021.
The first half of the year was something we’ve never seen before and may never see again.
A perfect storm of supply issues and record Chinese steel production fuelled by post-pandemic stimulus spending sent prices to record levels, scaling to heights of US$237/t on May 12.
China produced an astonishing 573Mt of crude steel from January to June, almost 12% higher than the level it hit in a record 2020, the first year in history when the Asian economic powerhouse delivered more than a billion tonnes of crude steel.
Profits and dividends went through the roof.
Australia’s biggest five iron ore miners — BHP (ASX:BHP), Rio Tinto (ASX:RIO), Fortescue Metals Group (ASX:FMG), Roy Hill and Mineral Resources (ASX:MIN) paid out $59.5 billion for the year to June 30.
Gina Rinehart, Australia’s richest person, banked $3.92 billion from Roy Hill alone, after the 60Mtpa miner delivered $5.6b to shareholders.
Hancock Prospecting’s Atlas Iron business, on death’s door as a listed entity a few years ago, raked in more than $900 million profit as Hancock declared a $7.3 billion profit — a record for a private company and larger than three of the four big banks.
Even junior miner Fenix Resources (ASX:FEX), which only hit steady state production at its Iron Ridge mine in WA’s Mid West in March, paid a $24.8m dividend on just three months of production. It only delivered its millionth tonne in December.
Was this sustainable? Of course not. The wheel turned sharply in the second half of the year.
Chinese steel production sagged to its weakest levels since 2017 due to output cuts enforced on environmental grounds against the backdrop of a trade war with Australia. The Chinese property market went belly up as its second biggest developer Evergrande threatened to collapse under a US$300 billion mountain of debt.
Prices saw their largest quarterly drop since the GFC through the September quarter, falling as low as US87/t before another bull rally sent them above US$120/t to end the year.
After such a volatile year, what on earth does 2022 have in store?
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