Some boom left in iron

Facts ‘N’ Figures

The United Nations Conference on Trade and Development (UNCTAD) Iron Ore Trust Fund recently published its annual iron ore market review: The Iron Ore Market 2006-2008, in co-operation with the Raw Materials Group.

The iron ore boom continued at a rapid pace in 2006 and well into 2007, with a Chinese steel company making the first, benchmark price deal, thus confirming China’s overwhelming importance to the iron ore world market. China is now the world’s largest steel producer, steel consumer, steel exporter, iron ore importer and the second largest iron ore producer.

World use of finished steel products increased by 8.5% in 2006 to 1.11 billion tonnes, while world crude steel production increased by 8.8% to 1.24 billion tonnes.

The high pace of growth has continued during 2007. World production of iron ore grew by 12% in 2006 to reach 1.5 billion tonnes. Output increased mainly in the four major producing countries: Brazil, China, Australia and India.

China is now the world’s second-largest producer, behind Brazil, but just ahead of Australia. World iron ore exports increased by 6.1%. Australia is still the leading exporter at 248.4 million tonnes, while China was of course the most important importing country, accounting for 43% of world iron ore imports.

Freight rates started increasing in the second half of 2006, and the rise continued in early 2007, with rates rapidly reaching record levels.

Iron ore price negotiations for 2007 concluded unusually quickly with a mark-up of 9.5% for fines. One reason for the easy negotiations was CVRD’s wish to secure a foothold in China. And the Chinese buyers want to be seen as price setters.

Almost 70 million tonnes of new iron ore mining capacity entered operation in 2006. The total project pipeline contains 375 million tonnes of new production capacity, mainly in Australia and Brazil, to come on-stream from 2007 through 2009.

If IISI forecasts are correct, iron ore demand will have grown by 236 million tonnes in 2009 compared with 2006. Thus, demand growth would not be large enough to absorb the certain additions to iron ore capacity. However, past experience shows that additions to capacity are usually overestimated.

— The preceding is from an information bulletin published by the Stockholm, Sweden-based Raw Materials Group.