The economics of iron ore

METALS COMMENTARY

The latest report issued by London-based information service Roskill examines the iron ore industry.

The study reviews key trends, issues and developments in the evolving iron market. In addition to looking at the use of iron in steelmaking on a world scale, the report analyzes all major iron producing regions on a case-by- case basis.

Over the last decade, iron ore production has increased by 5.3% per year. However, from 2001 onwards, the growth rate has averaged 9.7% annually.

Roskill’s report attributes rapid industrialization in China, Russia, Ukraine and India to the increased demand and output, as these countries consumed most of the 1,400 megatonnes produced in 2006. The study also points out the lower demand for steel in mature industrial economies.

The last decade has seen an increase in both pig iron and direct reduced iron (DRI) as countries establish stronger pollution and environmental restrictions. Iron producers are also edging towards these resources to combat limited scrap availability.

Rapidly industrializing countries seem more likely to engage in this trend — India alone produced 14.7 megatonnes of DRI in 2006.

According to the report, Asia leads iron production, closely followed by South America and Oceania. China, India, Brazil and Australia represent the largest producing countries in these regions. CVRD, Rio Tinto and BHP Billiton dominate production controlling 34.7% of world output and 78.2% of seaborne trade, giving them firm control over the 2006/07 world market.

The rise of global iron ore production since 2001 to meet demand from Asian steel industries has resulted in a small surplus in the supply demand balance, leaving little room to manoeuvre in the market.

Roskill says a new generation of iron ore projects, both integrated with steelmakers and independent of major mining companies, are coming on-stream in Australia, South America, Western Africa, South Africa, Eastern Europe, the Middle East, China, India, and other parts of Asia.

China is advancing its influence in the market with a variety of iron ore projects at home and abroad.

Australia and Brazil will continue to be the main areas of growth and new areas of exploration in West Africa and South America will likely add to the market in the near future.

In 2008, the report predicts contract prices for iron ore are likely to increase by 50%. But the large number of mining projects planned for the next few years could result in some price deflation by 2010.

The Roskill report includes: forecasts for end-use consumption and world supply and demand; a detailed survey of production in 76 countries; and profiles of major production companies and their activities.

— The preceding is an edited version of a synopsis of the report, found atwww.roskill.com