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TABLE OF CONTENTS Nov 19 - 25, 2012 Volume 98 Number 40 - 0 comments

Roskill: Turbulence in store for iron ore

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London-based resource market analyst Roskill Information Services predicts continued volatility in the iron ore market to 2020, based on the findings of its recent report entitled: Iron Ore: Market Outlook to 2020 (7th ed.).

Roskill argues that from 2006 to 2011, the promise of a high return on investment led to a decrease in the concentration of corporate control of seaborne trade in iron ore.  During this period, the share of seaborne trade controlled by Rio Tinto, BHP Billiton and Vale fell to 57.3% of the world total. Roskill expects this trend to reverse to 2020, as the limited availability of capital will make securing project financing more difficult for emerging producers. Much of the increase in capacity is expected to come from capacity expansions in Australia and Brazil and from projects backed by leading steel producers seeking to secure future supply. 

Downward revisions in the long-term outlook for iron ore demand and prices are likely to lead to the delay, suspension or cancellation of a large number of projects. Nonetheless, Roskill estimates that 425 tonnes per year of nameplate capacity will be added from the middle of 2012 to the end of 2014, and that capacity additions will continue to exceed 100 tonnes per year through to 2020. These additions are likely to exceed demand growth and mostly represent low to medium-cost operations. Consequently, Roskill argues, producers at the higher end of the cost curve — particularly those in China — will find themselves unable to compete in the open market. 

Roskill points out that in 2012, a destocking phase among steel producers depressed demand for iron ore, and the World Steel Association expects apparent consumption of finished steel products to grow by only 2.1% in 2012, down from 6.2% in 2011. A partial recovery appears likely, as the construction sector in China and increased infrastructure spending will support growth in demand. During the period to 2020, however, rising demand from other emerging nations is unlikely to fully offset the slowing pace of growth in China’s steel use, as the country approaches a peak in per capita steel consumption.  

Roskill expects growth in apparent crude steel use to average 2.9% annually from 2012 to 2020. Owing to the ongoing shift of steel production to countries with a higher use of iron ore per unit of steel, Roskill forecasts that demand for iron ore, at 3.1% per year, will marginally outpace steel demand, despite a relative increase in the use of scrap metal.

According to Roskill, uncertainty over the eurozone affects the iron ore industry through its effect on demand, as well as on the reduced availability and higher cost of capital. Revisions of figures on Chinese growth targets and performance are likely to result in further short-term peaks and troughs, although much of the adjustment to a more realistic outlook has already taken place — albeit some rebound from excessive and unwarranted pessimism may be expected. Roskill highlights other risk factors, such as growing resource nationalism, particularly in Africa, highly unpredictable energy costs, rising labour costs and the fate of the Indian mining industry following mining bans in Goa and Karnataka states.

Following the slump in prices from June to September 2012, Roskill expects prices to remain above US$120 per ton CFR for Indian fines of 63.5% iron content until the end of 2014, while a restocking phase may push prices towards US$135 per ton during 2013, although large fluctuations are not unlikely. As new capacity comes on stream, the industry’s price floor will gradually drop, and Roskill expects that the US$100 per ton price level will be repeatedly tested and eventually broken towards 2015. In its baseline scenario, and adjusting for inflation, Roskill expects that prices may trend towards US$85 to US$95 per ton from 2016 to 2020.

— Roskill’s Iron Ore: Market Outlook to 2020, seventh edition is available for purchase for US$6,750 from

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