Exxaro reports on iron ore and titanium markets

Disruptions to supply chains, demand, international trade flows and travel, along with lockdowns, collapsing currencies and stock prices, resulting from measures related to COVID-19, have dealt a heavy blow to the global economy.

During 1H20, the global economy recorded the worst downturn since the 1930s. As a result, global real GDP for 2020 is expected to contract by 6%, compared to a growth of 2.6% in 2019.

Aggressive fiscal and monetary stimulus by Governments and Central Banks, respectively, were injected into the global economy to soften the downturn and, in turn, support economic recovery.      

A deeper recession in 2020 compared to 2008/09 is anticipated. However, commodity markets recorded mixed results during this time.

Chinese steel production remained strong and, together with continued low iron ore inventory levels and high steel margins, supported the iron ore price during the period under review. Additionally, constrained Brazilian supply, as a result of COVID-19 related disruptions, have kept the global iron ore market balance very tight.

Exxaro is one of the largest South Africa-based diversified resources companies, with main interests in the coal, titanium dioxide, iron ore and energy commodities.

In respect of Exxaro’s key commodities for 1H20, the API4 coal export  price index is expected to average US$66 (2H19: US$69) per tonne, free on board (FOB), and the iron ore fines price US$90 (2H19: US$96) per dry metric tonne, cost and freight (CFR) China.

Guidance on Sishen Iron Ore Company’s equity-accounted contribution will be provided when the company has reasonable certainty on its 1H20 financial results.

The titanium dioxide (TiO2) pigment market fundamentals softened with high supply, most notably from China, and weakened global demand especially during the second quarter of 2020.

The willingness to spend by a weakened consumer base, and behavioural changes to end markets for which TiO2 is most exposed to, have negatively influenced overall demand levels during 1H20.  

Exxaro remains committed to monetise its remaining shareholding in Tronox plc Holdings in the best possible manner, taking into account prevailing market conditions.

Exxaro is in the final stages of concluding an agreement for the sale of its 26% shareholding in Black

Mountain Mining (Pty) Ltd. It is anticipated that the agreements will be concluded before the end of June.

OUTLOOK FOR THE SECOND HALF OF 2020

For 2H20, the re-starting of the global economy is anticipated to bring economic growth recovery.

However, the uncertainty about the path of the COVID-19 virus makes any assessment of the global economic outlook challenging.

The impact of COVID-19 on South Africa’s fragile public finances has been devastating, with gross government debt as a % of GDP likely to rise significantly together with debt service costs. These fiscal imbalances will have a knock-on effect on the economic recovery path for South Africa into 2H20.

During 1H20, the ZAR depreciated to an all-time low in March, before it retracted significantly in June.

The reversion to a more risky environment, as a result of the easing of global COVID-19 lockdown restrictions, supported the ZAR.

The rand/dollar exchange rate is expected to remain volatile during 2H20.

Despite steady Chinese iron ore demand, a recovery in seaborne trade is anticipated to offset a modest rebound in ex-China steel output. In addition, as China’s iron ore port inventories rise towards the end of 2H20, a softening iron ore market is expected.

In line with Exxaro digitalisation program, the company continue to roll out the Integrated Operations Centers across all its operations to enable the visualisation of the value chain.

The increased visualisation of the overall value chain as well as data-driven insights gained from its operations will highlight inefficiencies and will enable improved in-time decision making relating to safety, productivity improvements as well as cost performance.