Ore prices made phe­nom­e­nal progress in the past few months: Tom Al­banese

Resource Digest - - CONTENTS -

Iron ore prices have risen sharply in the past few months.but, miners are now cau­tiously op­ti­mistic as to how prices will play out this year, says Vedanta Re­sources Chief Ex­ec­u­tive Of­fi­cer TOM AL­BANESE in an in­ter­view. Edited ex­cerpts.

DE­FY­ING PRICE FORE­CASTS BY RE­SEARCH AGEN­CIES, IRON ORE PRICES HAVE MORE THAN DOU­BLED SINCE 2016 BE­GIN­NING. METALLURGICAL MINES AS­SO­CI­A­TION OF CHINA SAYS THE AVERAGE SEA BORNE ORE PRICE IN 2017 WILL RISE ‘MOD­ER­ATELY’ FROM LAST YEAR’S AVERAGE OF $60 A TONNE. AS A BIG PRO­DUCER-EX­PORTER IN IN­DIA, HOW DO YOU LOOK AT THE SCENE?

What­ever the fore­casts, ore prices made phe­nom­e­nal progress in the past few months. This might be due to a com­bi­na­tion of knee-jerk re­ac­tion to the se­ries of global eco­nomic and po­lit­i­cal de­vel­op­ments and the mar­ket run­ning a lit­tle ahead of it­self. For over a year, the mar­ket en­ter­tained fears of lower world metal de­mand on the back of China en­ter­ing a ma­ture pe­riod in its ma­te­ri­als con­sump­tion cy­cle.

But, this fear sen­ti­ment dis­ap­peared when Bei­jing in­tro­duced a stim­u­lus pro­gramme in the sec­ond half of 2016. Liq­uid­ity flowed into in­fra­struc­ture and real es­tate sec­tors. In the process, ore de­mand was reignited. Don­ald Trump win­ning the US Pres­i­den­tial elec­tion con­vinced com­mod­ity bulls of a rally in 2017.

BUT, WILL NOT THE BULLS HAVE TO CON­TEND WITH HIGH IN­VEN­TO­RIES OF IRON ORE AND COM­MIS­SION­ING OF NEW LARGE MINES?

True, ore in­ven­to­ries are ris­ing and these are at this point well above his­tor­i­cal average. Given this sit­u­a­tion, a le­git­i­mate ques­tion is to what fur­ther ex­tent can spot prices climb. Then, global con­cern over cli­mate change will be an in­ter­est­ing fac­tor to watch out for. Some soft­en­ing of ore prices of late is as­cribed to Bei­jing, ask­ing steel mills to stay shut till the smog has cleared.

The Chi­nese steel sec­tor stuck with old tech­nol­ogy has higher emis­sion lev­els than its peers in many other coun­tries. Are we go­ing to see Chi­nese in­dus­try mak­ing a mass tran­si­tion to a new en­vi­ron­ment friendly tech­nol­ogy or will Bei­jing rest con­tent in­tro­duc­ing a stricter regime for steel mill op­er­a­tion? Answers to these ques­tions as they un­ravel will de­cide the course of ore prices.

WHAT COULD BE THE IM­PACT OF PRICE IM­PROVE­MENT ON ORE OUT­PUT?

That there is a trickle-down ef­fect of higher prices on ore pro­duc­tion is ac­cepted. In the past cou­ple of years, the fo­cus of miners was to im­prove op­er­a­tional ef­fi­ciency and cut costs to weather low prices. This might now change to more ac­tion on ore price im­prove­ment and de­mand sup­ply out­look be­ing less over­cast. Brazil­ian Vale’s $14.3 bil­lion Eliezer Batista S11D com­plex near Canaa dos Cara­jas stands as an ex­am­ple of how green­field and brown­field ac­tiv­i­ties in iron ore in­dus­try may kick off.

Miners in gen­eral are cau­tiously op­ti­mistic about how ore prices will play out this year. While some bro­ker­ages ex­pect prices to average $60 a tonne, there are oth­ers who dis­miss the re­cent rally as a ‘fluke’. They don’t see a run­away rally hap­pen­ing in 2017.

DO YOU THINK LIBERALISATION OF MIN­ER­ALS EX­PLO­RATION POL­ICY AND MINES OWN­ER­SHIP COM­ING THROUGH BID­DING AT AUC­TIONS WILL USHER IN A NEW ERA IN IN­DIAN MIN­ING?

We are in an in­ter­est­ing pe­riod for In­dia’s nat­u­ral re­sources sec­tor. With the gov­ern­ment go­ing all out to boost min­ing ac­tiv­i­ties through re­forms, the reg­u­la­tory en­vi­ron­ment is be­com­ing in­creas­ingly en­cour­ag­ing. The amend­ment of Mines and Min­er­als (De­vel­op­ment and Reg­u­la­tion) Act that al­lows trans­fer of cap­tive min­ing leases not granted through auc­tion will give a boost to the sec­tor. Also, merg­ers and ac­qui­si­tions will ben­e­fit from MMDR Act amend­ment.

At the same time, there are some legacy is­sues such as land own­er­ship pat­tern, qual­ity of min­er­al­i­sa­tion stud­ies and end-use re­stric­tions that need ad­dress­ing.

TOM AL­BANESE, CEO VEDANTA RE­SOURCES

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