Summary of Iron Ore Market Analysis Industry Overview - **Industry**: Iron Ore - **Date**: February 2, 2026 - **Source**: Morgan Stanley Research Key Points Iron Ore Market Dynamics - Iron ore has shown resilience despite a decline in Chinese steel output and the commencement of shipments from the Simandou mine, with modest downside expected ahead [1][3] - China's crude steel output decreased by 5% in 2025, but pig iron production via blast furnaces only fell by 2%, indicating a continued demand for iron ore [3][25] - Iron ore port inventories in China have reached near all-time highs, suggesting a robust demand story despite the increase in seaborne supply [26][42] Supply and Demand Factors - Seaborne iron ore supply from Australia, Brazil, and South Africa increased by 2.2% in 2025, totaling 1,396 million tonnes, marking a new all-time high [11][4] - Domestic iron ore output in China fell by 2.8% in 2025, with significant declines in Hebei province due to environmental inspections and resource depletion [19] - India's iron ore imports surged by 46% YoY in 2025, indicating a shift in sourcing patterns as domestic production struggles to keep pace with rising steel capacity targets [20] Price Outlook - The average iron ore price is projected to be $100 per tonne in 2026, with a potential trough of $95 per tonne in Q3 [5][42] - The cost curve indicates that around 60 million tonnes of production is above $100 per tonne, influenced by rising oil prices and a weaker USD [4][36] - The introduction of a new 61% Fe benchmark in January 2026 reflects a shift in pricing dynamics, complicating the market landscape [39][40] Risks and Opportunities - Upside risks include a sharp decline in China's domestic iron ore output, large-scale stimulus measures, and seasonal supply disruptions [42] - Downside risks involve accelerated supply growth, reduced blast furnace utilization, and potential steel export restrictions from China [42] - The activity of China's joint purchasing group (CMRG) could impact market dynamics, particularly if disputes over pricing negotiations lead to restricted shipments [38] Conclusion - The iron ore market is navigating a complex landscape characterized by resilient demand from blast furnaces in China, increasing seaborne supply, and evolving pricing benchmarks. While modest price declines are anticipated, the overall market remains supported by cost structures and potential demand from emerging markets like India [1][42]

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: Aluminium and Alumina - **Current Price Trends**: LME aluminium prices have rallied to over $3,000 per tonne, driven by tightening fundamentals, supply disruptions, and increased net speculative positioning [2][3] Aluminium Market Insights - **Demand Growth**: Primary aluminium demand is expected to grow at approximately 2.5% in 2025, slightly below the trend of 3-4%, leading to a modest surplus in the market [3] - **Supply Constraints**: Supply growth is limited, particularly in China where smelter run rates are at the 45 million tonnes capacity cap. Future growth from Indonesia is expected to be measured, with restarts in Europe and the US offset by closures [3][9] - **Price Outlook**: The LME price is above the cost curve, indicating an improving supply-demand outlook. A balanced global market is anticipated in 2026, with medium-term price risks skewed to the upside as demand improves [3][21] Alumina Market Insights - **Price Trends**: Alumina prices are currently around $300 per tonne, reflecting a bearish outlook due to significant overcapacity in China and new capacity additions in Indonesia and India [4][39] - **Capacity Additions**: China is expected to add over 10 million tonnes of new alumina capacity in 2026, contributing to the existing overcapacity [4][47] - **Fundamental Challenges**: Despite low prices, the outlook for alumina remains challenging due to limited growth in global aluminium output and low capacity utilization in China [39][46] Regional Supply Dynamics - **China**: Expected to produce 44.5 million tonnes of primary aluminium in 2025, with negligible growth beyond that due to the 45 million tonnes capacity cap [27][28] - **Indonesia**: Anticipated to be the largest contributor to global supply growth, with projects expected to add approximately 3 million tonnes of new supply over the next 2-3 years [13][14] - **Europe and US**: Several smelters are in the process of restarting, but material production increases are unlikely due to high costs and market conditions [22][23] Investment Insights - **Equity Performance**: AA has outperformed NHY, driven by potential catalysts such as Canadian tariff exemptions and improved cash returns. Valuations for aluminium are generally undemanding, with NHY seen as more valuable compared to AA [5] - **Investment Recommendations**: Continued buying interest in companies like Hongqiao and Press Metal is noted, with a cautious approach towards AA due to stretched valuations [5] Additional Considerations - **Power Constraints**: The aluminium smelting process is highly power-intensive, and the availability of power in Indonesia may constrain growth. The planned increase in aluminium smelting capacity will require significant growth in national power output [15][16] - **Bauxite Supply**: China's dependence on imported bauxite from Guinea poses risks, but increased imports and stabilization of domestic production are expected to support alumina output [46][47] This summary encapsulates the key insights and projections regarding the aluminium and alumina markets, highlighting both opportunities and challenges within the industry.