FSA COMMITTEE
FSA NEWSWEEK
23rd April 2021
Iron Ore Giants Struggle to Keep Up with Increased Chinese Steel Demand
Strong Chinese iron ore demand in the first quarter of 2021 driven by infrastructure spending has left two of the world’s largest miners struggling to keep up. Crude steel production in China is currently near record highs and many analysts believe the country’s crude steel capacity will continue to grow this year undeterred by a pollution crackdown.
During the first quarter of 2021, Brazil’s Vale SA produced less iron ore than forecast due to lower productivity at one mine and a ship loader fire. Both of these factors led to Vale only producing 68 million tonnes against forecasts of 72 million tonnes. Undeterred by this lower productivity Vale has maintained its forecast for full-year production.
Closer to home, Rio Tinto’s shipments were also disrupted by wetter than average weather at its Pilbara facilities, and then more recently mine and port operations were disrupted by Tropical Cyclone Seroja. Despite both of these setbacks, Rio still believes it remains on track to achieve its 2021 shipping guidance of between 325 million and 340 million tonnes.
Source: Market Index
This recent decrease in output has led to surging iron ore prices with the spot price rallying to its highest point since early 2011, currently, the price sits at $US188.23 a tonne. China’s new strict environmental controls aimed at slowing steel production are unlikely to signal the end of rising iron ore prices, as capping high-carbon steel is actually driving the demand for a higher grade of iron ore. This leaves Australia well placed in the Chinese iron ore market as local miners are known for generally having high-grade iron ore.
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Yellen Touts Biden Climate Agenda
On Wednesday, April 21, US Treasury Secretary Janet Yellen outlined the Biden administration’s ambitious plans for dealing with the effects of climate change, whilst calling on the private sector to do its part in addressing what she called “a threat to the planet”. Yellen’s speech to the International Institute of Finance marked a stark contrast with the previous Trump administration, which had often rejected the scientific consensus on climate change and promoted fossil fuels.
Yellen’s speech primarily focused on the benefits of Biden’s $2.3 trillion American Jobs Plan, which has been touted as “the most significant public investment in America since the 1960s”. The proposal includes a number of so-called green initiatives, including a Clean Electricity Standard aimed at achieving carbon-free electricity generation by 2035. Previous iterations of a clean energy standard have set a goal of 100% carbon-free energy by 2050 at the latest. Significantly reducing the timeline of such a proposal provides an indication as to how seriously the Biden administration is considering this issue of climate action.
Indeed, the Clean Electricity Standard proposed by the Biden administration represents a transformative measure and would considerably loosen US reliance on fossil fuels in less than 15 years. Currently, the United States adds about 2 percentage points of clean energy to the national grid each year. Implementing the new standard would see that figure rise to approximately 5 percentage points annually.
Yellen offered scant details on how such a proposal would be enacted and made no mention of the opposition to the American Jobs Plan. Republican lawmakers in both the House of Representatives and the Senate are likely to oppose the legislation and have ramped up their criticism of the pace and scope of Biden’s environmental agenda. While Biden has signaled his intention to work in a bipartisan manner, Senate Minority Leader Mitch McConnell told a news conference in Owensboro, Kentucky that he would fight the administration “every step of the way” over this key infrastructure bill.
Republican opposition endangers a number of other important green initiatives included in Biden’s American Jobs Plan. In Yellen’s speech to the International Institute of Finance, the US Treasury Secretary referenced particular provisions, such as extended tax credits for renewable energy production, grants intended to spur the creation of 500,000 new electric vehicle chargers, and direct funding of research and development. Yellen noted that while the federal government was willing to sustain significant public investment, the private sector would also have to be in it for the long haul. As such, many of these green provisions are focused on encouraging firms to shift their focus away from fossil fuels and towards renewable energy sources.
While Yellen certainly spoke optimistically about Biden’s climate agenda, the viability of the American Jobs Plan remains up in the air. Should Democrats proceed with the reconciliation process, which requires only a simple majority in the Senate, then the bill would likely pass. Indeed, implementation of the American Jobs Plan and its green initiatives would represent a major victory for Biden and Yellen in addressing the issue of climate change.
The views expressed within this article are those of the authors and do not represent the views of the Finance Student's Association. All images and references in this article are for fair and educational purposes only. The content in this article is not intended as legal, financial or investment advice and should not be construed or relied on as such.