Iron Ore – the Future is Back

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- United Nations Conference on Trade and Development Iron Ore trust fund …

- United Nations Conference on Trade and Development Iron Ore trust fund
- Production & industry concentration with specific reference to China
- Future pricing system, transparency issues
-Impact of demand changes: production cutbacks, upstarts and expansions, project pipe-line, changing ownership structure
- A special note on the Chinese iron ore industry
- Medium term outlook
- Summary and conclusion

Author:

Per Storm, Managing Director, RAW MATERIALS GROUP, Sweden

More in: Business
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  • 1. 6th Annual Eurocoke Summit workshop &conference, 27th - 29th April 2010;Lisbon, PortugalOutlook foriron ore – Tungsten drawing: Kaianders Sempler.The future isback!Per Storm,managing Director
  • 2. Outline• UNCTAD Iron Ore Trust Fund• Global background• Demand• Supply• Short term outlook.• Medium/long term outlook.
  • 3. Raw Materials Group• Raw Materials Data, Metals/Coal/Iron Ore.• Strategy development: – Mining companies, equipment & service providers.• Mineral policy, investment promotion: – Governments, International organisations.• Pre-feasibility/Feasibility studies: – Financial institutions, companies.
  • 4. UNCTAD Iron Ore Trust Fund• 1987, since 2002 with Raw Materials Group of Sweden.• Two annual publications – Iron Ore Market Review in May – Iron Ore Statistics in September• Financed by sales and contributions from Australia, Brazil, Canada, Sweden and US.• Contact ironore@unctad.org for information.
  • 5. Global backgroundVanadium drawing: Kaianders Sempler.
  • 6. Global iron ore production 2009 Mt2000 1690 Mt - 2.2 % China 370 Mt Oceania1500 no growth Asia1000 Africa Americas 500 Europe 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Sources: RMG, UNCTAD.
  • 7. Global iron ore exports 2009Mt 1000 911 Mt + 2.4 % 800 Australia 360 Mt Oceania Asia 600 Africa 400 Americas 200 Europe 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Sources: RMG, UNCTAD.
  • 8. Chinese question mark 1?• Reported prod. 824 Mt = 245 Mt Fe (30%).• Pig iron content 440 Mt Fe (94%).• Imports 280 Mt Fe (63 %).• Domestic demand 160 Mt -> excess of 85 Mt.• Possible explanations: – Stock build up. – Losses/incorrect reporting. – Average ore grade falling.
  • 9. Chinese question mark 2?• Possible explanations: – Stock build up: 25 Mt – Losses/incorrect reporting: 42 Mt (concentration/transport/steel) Sum 67 Mt• Adjusted domestic need 160+67=227 Mt – Average ore grade fell to 27.5 % = 824 Mt• Answer combination of all three.
  • 10. How competitive are Chinese iron ore mines 1 ?Mt • Domestic Chinese production hard hit, while imports stayed constant. • Demand picked up, both benefitted. Source: TEX Report
  • 11. How competitive are Chinese iron ore mines 2 ? • Falling prices made imports more competitive their share rose. • Import dependence increases. Source: TEX Report
  • 12. Global background• The Chinese long march will start – shake out among producers.• Australia taken the lead among producers and exporters.• Corporate concentration excessively high – particularly if the BHP Billiton and Rio Tinto JV is accepted.
  • 13. DemandLithium drawing: Kaianders Sempler.
  • 14. Short term assumptions 1Crude steel: World monthly production, Mt • Steel recovering, 2009 10% lower than 2008. • Europe and North America 25-30 % below last year. • Stimulus packages are having an impact, but more important China goes against the trend. Source. World Steel Association
  • 15. Short term assumptions 2 China: a reversal of trendsMt 70.0 60.0 • Chinese crude steel 50.0 production 568 Mt 2009. • Some Chinese mines can 40.0 Iron ore not cover their costs. 30.0 imports • Chinese iron ore imports Crude steel 20.0 production in 2009 629 Mt. 10.0 0.0 Sources: World Steel Association, TEX Report July July Jan-08 Jan-09 April April October October
  • 16. Demand growth to 2020Mt 3000.0 • Demand growth is 2500.0 expected to average 2000.0 3.3 % per year from 2008 to 2020 (6 % 1500.0 1998 to 2008). 1000.0 • Around 2014, world 500.0 iron ore demand will pass the 2 billion ton. 0.0 Sources: UNCTAD; RMG. 2020 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
  • 17. Demand• Slow down in growth even if 2007 levels soon will be reached.• Is the super-cycle still running?• Further focus on Asia.• Slow recovery in Europe.
  • 18. SupplyThorium drawing: Kaianders Sempler.
  • 19. Global iron ore productionSource: Raw Materials Data Iron ore, 2009.
  • 20. Corporate concentration% 35 30 25 20 15 10 5 Seaborne trade 2008 0 2008 Vale 1990 Rio Tinto BHP 7 next Billiton Source: Raw Materials Data, 2009. largest
  • 21. Project pipeline Source: Raw Materials Data Iron ore, 2010.
  • 22. Iron ore projects 2009-2011Mt 250 200 150 Possible 100 Probable Certain 50 0 A N So A Eu O fri or si ce ut ro a ca th an h pe A A ia m m er er ic ic Source: Raw Materials Data, 2009. a a
  • 23. Project pipeline• Few cancelled projects, but slow down.• West Africa, Siberia, Canadian arctic problems.• Brazil, South Africa, West Europe advantage.• Large producers: capability to wait for market.• Surprisingly quick restart.• But supply response is slow.• Political demands hamper developments.• Project pipeline surplus 2010/2011 300-400 Mt.
  • 24. Short term outlook• In 2010 the world as a whole will have returned to the economic activity in 2007 – but huge differences between countries.• Global iron ore demand is expected to increase by about 10 %.• Spot prices are likely to strengthen, benchmark prices at 2009 levels plus 10 – 15 %.
  • 25. China long term trendsMt 700 600 500 400 Iron ore imports 300 Crude steel production 200 100 Sources: UNCTAD, TEX Report 0 2002 2003 2004 2005 2006 2007 2008 2009
  • 26. Chinese import dependency 2007 2008 2009 Imports (Mt) 383 444 628 Production (Mt) 365 366 374 normalised Self-sufficiency (%) 49 45 37 Source: UNCTAD, China Metallurgical Newsletter.
  • 27. Long term assumptions• Resumption of global growth, driven by Asia.• Some reduction in Chinese steel intensity.• Recovery of growth in international trade, rising freight rates over next 5-10 years.• Few new high quality deposits in China.• Continued dominance by “Big 3”.• Few new deposits outside Australia and Brazil.
  • 28. Freight rates1999 - 2009USD/ton Brazil-Europe Australia-China Sources: Drewry, SSY.
  • 29. Prices and freight rate differentialsUSD/ton Sources: UNCTAD, TEX Report, Metal Bulletin
  • 30. Prices/freight rates interact• Benchmark pricing made the freight rate the most important dynamic factor• High freight rates have protected domestic Chinese iron ore producers.• Lower freight rates, combined with lower demand, expose the Chinese producers to competition.
  • 31. Medium/long term outlook 1• The Great Chinese Shakeout – Low grade Chinese mines can not compete with imports and shut down. – Import dependence increases. – Strong stimulus for iron ore producers in the rest of the world. – Seaborne trade grows fast, offering opportunities for new suppliers.
  • 32. Medium/long term outlook 2• Business as usual – Domestic Chinese iron ore mines adapt and stay competitive. – Or, high freight rates provide protection. – Import dependency in China constant. – Room for growth in the rest of the world, but new suppliers will find it difficult.
  • 33. Conclusions• Chinese miners will act as a buffer, absorbing variations in demand.• Rest of the world relatively stable conditions.• Prices determined by interaction of demand conditions and freight rates.• Long term future bright.
  • 34. THANK YOU ! Raw Materials Group PO Box 3127 SE-169 03 Solna, Sweden Tel: +46-8-744 00 65 Per.storm@rmg.se UNCTAD ironore@unctad.orgManganese drawing: Kaianders Sempler. www.rmg.se