KUMBA Iron Ore continued to rack up fresh share price records, ending today at R717.19/share, a daily gain of 2.5%, and valuing the company at nearly R230bn – double its value of 12 months ago.
According to a report by Bloomberg News, the iron ore price could rise to as much as $250 per ton over the next 12 to 18 months although it’s likely to take a breather first. The mineral eased through $220/t earlier this week, an improvement that represents stellar business for Kumba which guided to an aspirational unit cost of $34/t at its year-end results in February.
The company reported a realised iron ore price of $183/t in its 2020 financial year which compares to an average of $153/t for the year before.
Commenting on the iron ore market, Kumba said current price levels were possibly driven by the broad-based rally in the commodity sector. “Supply, on the whole, remains tight and port iron ore stocks are falling,” it said in an emailed statement.
“This has been exacerbated by uncertainty around supply following a recent announcement from China’s National Development and Reform Commission to end economic dialogue with Australia. Imports from Australia account for approximately 60% of imports.”
There are also reports of China restricting iron ore vessels originating from India from discharging following concerns around the Covid-19 outbreak in India.
“This has potential implications for further supply disruptions,” said Kumba spokesperson Sinah Phochana. On Monday, one of the ships reported infection amongst its crew and was placed under quarantine, she said.
“Over and above the supply side, on the demand side, China’s steel production and mill margins have continued to increase, incentivising mills to procure more ore, while the environmental restrictions have increased demand for lump and pellet products,” it said.
Kumba said in a first quarter production report in April that there were problems railing iron ore to port, partly owing to locust swarms, but RMB Morgan Stanley suggested the company may yet test volumes last achieved in its 2018 financial year when it railed 43 million tons (versus 2021 guidance of 40.5Mt to 41.5Mt).
“Logic dictates that these are ridiculous prices but fear will continue to keep the scramble going,” Andrew Glass, Singapore-based founder of Avatar Commodities said of the price for iron ore in a report by Bloomberg News.
“There is fear of not being able to secure the logistics and the resources you need – $220 is expensive, but it’s much more expensive if you have to shut down a mill because you can’t get material,” said Glass.
According to Oversea-Chinese Banking Corporation, iron ore could increase to as much as $250/t in the next 12 to 18 months.