China-backed Grange Resources has tipped 2018 to be volatile for iron ore miners, with Chinese government efforts to manage steel production and ongoing geopolitical instability contributing to an uncertain outlook.
The miner, which counts Chinese steelmaking giant Jiangsu Shagang Group as its major shareholder, is expecting iron ore prices to fall by up to 20 per cent in 2018, in line with Australian government forecasts.
Grange said Chinese iron ore imports were expected to remain steady, but export volumes from Australia and Brazil were expected to grow, which would put downward pressure on spot prices.
The prediction was part of Grange Resources latest annual report, released to the ASX today.
Grange said big iron ore miners Vale, BHP and Rio Tinto were all forecasting increased production in the next several years, contributing to UBS and Citibank forecasts that the iron ore price would hover around $64 per tonne in 2018.
“Despite the uncertain conditions that we currently face, the long-term outlook for the sector remains positive,” the company said in its report.
“In the next 15 years, the world’s population will increase by more than 1 billion people, and almost half a billion people in China, India and the Association of South East Asian Nations region will move from rural to urban environments.
“The demand for minerals and metals will continue as they are essential ingredients of modern life.”
While Grange’s total sales were down to 1.9 million tonnes in 2017, from 2.75 million in 2016, the miner achieved a higher average sales price at $127.20 per tonne, up from $98.06 in 2016.
Net profit for 2017 was $60.7 million, down from $92.9 million in the previous year.
Grange said it would continue to seek a buyer for its Southdown magnetite joint venture, located near Albany in Western Australia, while also advancing plans to restart mine development.
The project, designed to produce up to 10 million tonnes of magnetite concentrate annually, was put on ice in 2012 because of rising development costs and the plunging iron ore price.
Grange holds a 70 per cent stake in the project, with Japanese companies Sojitz Corporation and Kobe Steel holding the balance.
PCF Capital Group was appointed in February to assist in seeking equity investors.
“During 2017, the joint venture partners continued to monitor all ongoing project requirements to ensure that the current status of feasibility studies is such that the project can be fully recommenced as soon as an appropriate opportunity arises,” Grange said.
“The ongoing strategy is to maintain the currency and good standing of all tenements, permits and project assets.”