Record iron output

Global production of iron in 2002 exceeded 1 billion tonnes, a record high, as output of crude steel surpassed 900 million tonnes, according to a report by London-based Roskill Information Services.

The Economics of Iron Ore (5th edition, 2003) says the rise in production is due not to a booming global demand for steel but rather to an unexpected surge in steel production in China over the past three years.

The tonnage growth in China’s steel output since 2000 is roughly equivalent to annual production in the U.S. Although China has a large iron ore industry, its output has long been insufficient to meet domestic demand, and the country is heavily dependent on imports, which doubled to 112 million tonnes between 1999 and 2002. Furthermore, imports were 44% higher in the first quarter of 2003 than in the comparable period in 2002.

This rapid growth appears to have taken the world’s iron ore producers by surprise and, coming at a time when steel production in most other countries is also growing, has eliminated any surplus of iron ore output and exerted upward pressure on prices. Although iron ore producers are moving to bring new capacity on-stream, the supply situation is likely to remain tight for the next two or three years, and an estimated 100 million tonnes per year of new capacity is required in the fairly short term.

Worldwide, some 190-200 million tonnes of production capacity per year are in the pipeline, principally in Australia and Brazil. Between 2003 and 2005 up to 115 million tonnes per year will be brought into production, mostly in the latter part of the period.

Not all the planned capacity increases are additional capacity: a significant proportion is intended to replace existing operations with nearly depleted reserves. Roskill forecasts that steel demand will continue to rise in the medium term but at reduced rates.

Ten countries dominate world production, and the supply to world markets is even more tightly controlled through seaborne trade. In the longer term, Africa is set to gain greater prominence as a producing region, with output from that country set to grow by 10 million tonnes per year by the end of the decade. The return to peace in Liberia could also see the rehabilitation of its iron ore industry, which once produced more than 10 million tonnes per year for export.

Recent years have seen a spate of merger and acquisition activity that has concentrated much of the world’s iron ore production capacity in the hands of a few companies. Brazil’s CVRD was the world’s leading producer even before it began to take control of the country’s other miners in the late 1990s. Now almost complete, the company’s acquisition program has given it control over an estimated 95% of Brazil’s iron ore production and all of its pellet capacity. In Australia, Rio Tinto, which already owns the iron-ore giant Hamersley, became the world’s second-largest producer in 2000 when it gained control over Robe River Iron Associates. In 2001, BHP merged with Billiton after failing to join its iron operations with those of Rio Tinto. These three companies are now responsible for 30% of world iron ore production and 70% of global exports.

— The preceding is from an information bulletin published by Roskill Information Services.