Fenix locks in key mining approvals as iron ore tests six-year highs

Fenix Resources (ASX:FEX) is the latest iron ore explorer to move into the construction phase with its Iron Ridge direct shipping ore (DSO) project receiving WA government approval.

Hot on the heels of another junior, Flinders Mines (ASX:FMS), which last week was given the green light for its $5bn Pilbara iron ore project, Fenix is ready to begin construction work for Iron Ridge.

“We are all set to commence works on site before the end of this month, in line with our previously announced timeline to achieve first sales in early 2021,” Fenix managing director Rob Brierly said.

Fenix is proposing to ship 1.25 million tonnes per year of DSO iron ore, which only requires crushing and screening, from WA’s Geraldton port, 490km west of its Iron Ridge mine.

“High-grade iron ore attracts a premium price on the seaborne market as Chinese steel works increasingly demand more pure inputs with lower emissions due to increasingly strict government regulations,” Fenix said.

Six-year high for premium-grade Australian iron ore

Chinese demand for higher grade Australian iron ore could go some way to explaining the elevated prices the product is fetching at China’s ports, say market experts.

Cargoes with a 62 per cent iron content delivered to ports in China are currently securing prices of $US130 ($177.50) per dry metric tonne (dmt), a six-year high, according to Metal Bulletin.

Iron ore prices started to climb from early May after taking a mauling in the COVID-19 outbreak.

It is worth pausing to reflect that while current prices are the highest since early 2014, they quickly went downhill from this peak to the $US40s/dmt in 2016, as China’s growth slowed.

Steel production in China trends toward record 1 billion tonnes

Another plausible reason for higher seaborne iron ore prices is the Chinese economic juggernaut’s continued recovery as reflected in its rising steel production.

Crude steel production for China was 689 million tonnes for the first eight months of the year ended August, up 3.7 per cent on January-August 2019, according to MySteel Global.

Chinese steel producer Baosteel is forecasting that China’s steel production will hit the magic annual number of 1 billion tonnes for the first time in 2020, up 4 per cent year on year.

This is a year earlier than expected by some, including the Australian government.

Steel production for China was forecast to reach 1 billion tonnes in 2021 up from an expected 959 million tonnes in 2020, according to the government’s Office of the Chief Economist’s June quarterly report.

China is targeting annual growth of 5.5 per cent in its 2021-2025 five-year economic plan, and is pulling out all the stops to achieve this with massive steel-intensive infrastructure spending.

China’s steel production and consumption continues to rise

Banks revise iron ore price forecasts

Iron ore analysts are rapidly revising upwards their price forecasts for the steelmaking mineral as major consumer China surprises with the strength of its demand recovery.

Citibank analysts foresee iron ore prices trading at $US100 to $US120/dmt for the remainder of 2020, up from an earlier forecast of $US90/dmt, and for 2021 its forecast price is $US110/dmt.

JP Morgan analysts are pitching a target iron ore price of $US105/dmt for 2021, up from $US100/dmt previously.

FEX and FMS share price charts

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