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How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
How is the iron ore supply pipeline shaping up?
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How is the iron ore supply pipeline shaping up?

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Laura Brooks, Senior Consultant – Steel Raw Materials, from CRU Analysis has presented at the Global Iron Ore & Steel Forecast Conference. If you would like more information about the conference, …

Laura Brooks, Senior Consultant – Steel Raw Materials, from CRU Analysis has presented at the Global Iron Ore & Steel Forecast Conference. If you would like more information about the conference, please visit the website: http://bit.ly/13MkVsy

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  • 1. Iron ore: supply in the spotlightLaura Brooks – Senior Consultant, CRUPrepared for:AJM 16th Annual conferenceWednesday 20th March, 2013
  • 2. Key questions:•  It’s all about supply…why?•  What happened to supply potential when prices crashed in Q3 2012?•  Who’s new and what are their chances?•  Will traditional supply hubs maintain market share?•  Can the drive for self-sufficiency in China translate into increasing ore production?Agenda2
  • 3. North AmericaEuropeAsia-Pacific, advancedLatin AmericaChinaAsia-Pacific,developingIndiaRest of world03006009000 5000 10000 15000 20000 25000 30000 35000 40000 45000x axis: 2011 GDP per capita, US$(1)y axis: 2011 consumption of finished steel per capita, kgData: CRU. Chinese data based on Chinese reported finished steel production.Note: (1) constant 2005 prices at market exchange rates.We expect China’s steel consumption per capita to peakaround the mid-2020s…3201120352025 Peak steel consumption = 1.1bn
  • 4. 30%60%90%05 10 15 20 25 30 35Primary iron ratio, %Data: CRU.… while global scrap generation is also likely to increasesubstantially by this point, driven by China4The requirement for primary iron unitsrelative to crude steel production will fall
  • 5. 01,0002,0003,0002010 2013 2016 2019 2022 2025 2028 2031 2034Pellets Fines and concentrates Lump ChinaDespite this, demand has much further to run and even whenChina tails off, global levels hold steady5World demand for iron ore, MtData: CRU.
  • 6. 02,0004,0002012 2015 2018 2021 2024 2027 2030 2033Possible Probable Committed DemandSupply potential is enormous, significantly overshootingdemand expectations6Gap analysis; iron ore demand and planned supply, MtData: CRU. Note: demand excludes Chinese demand satisfied from domestic production. Supply excludes Chinese production.
  • 7. Key questions:•  It’s all about supply…why?•  What happened to supply potential when prices crashed in Q3 2012?•  Who’s new and what are their chances?•  Will traditional supply hubs maintain market share?•  Can the drive for self-sufficiency in China translate into increasing ore production?Agenda7
  • 8. 020406080100120140160180200220J A J O J A J O J A J O J A J O J A J OSentiment plummeted… investment jitters soared…cautiousness emerged… cost controls grew8Spot prices for iron ore fines (62% Fe), CFR China, $/tData: CRU. Note: Prices assessed at one point mid-month.2008 2009 2010 2011 2012Prices fell to 3-year lowWHY?  Destocking  Plentiful supply on spot  Bearish sentiment•  “The global boom incommodity prices is over”(Martin Ferguson, Australian ResourceMinister, Sept 12)CRU view: Depends who you are•  “Commodities: Supercyclejitters slow projects”(Jack Farchy, FT, Oct 12)CRU view: In agreement
  • 9. •  Project postponements•  Cutbacks in future targets….as cost controls kick in•  Majors not exempt - refocusing•  ‘Price v cost’ concerns in Australia areparticularly intense given strength of Aus$•  Despite prices now over 60% higher thanSeptember’s low, CRU assesses thatattitudes towards financing have notimproved…There has been a widespread re-assessment ofprojects90%2%4%6%8%10%12%14%16%18%20%2010 2011 2012 2013 2014 2015 2016Aus juniors share of Aus exports (Jan 13)Aus juniors share of Aus exports (Oct 12)Australian juniors (1) share of total Australia exports, %Data: Company reports, GTIS. Note: (1) non BHPB, Rio Tinto, FMG
  • 10. Securing finance = main hurdle for new projects, both formajors and juniors10Equity raised, $M025,00050,0002008 2009 2010 2011 2012AIM ASX TSX TSXVData: TSX, ASX (mining & metals), AIM ($M).
  • 11. Key questions:•  It’s all about supply…why?•  What happened to supply potential when prices crashed in Q3 2012?•  Who’s new and what are their chances?•  Will traditional supply hubs maintain market share?•  Can the drive for self-sufficiency in China translate into increasing ore production?Agenda11
  • 12. Since 2008, export growth has been dominated by Australia– these gains have offset recent declines from IndiaExports of iron ore by selected country, MtData: CRU, GTIS.02004006002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012AustraliaBrazilIndiaAustralia •  Healthy growth from 2 majors•  Exceptional growth from FMGBrazil •  Environmental regulation•  Procedural delays•  Port capacityIndia •  Mining/export bans•  Export tax hike•  Drive to keep ore domestically
  • 13. At the same time, the volume of ‘Other’ exporters to Chinahas ramped up13Iron ore imports to China by origin, MtData: CRU, GTIS. Note: (1) ‘Other’ excludes Australia, Brazil, South Africa and India.02004006008002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012From OthersFrom Australia, Brazil, South Africa and India
  • 14. The ‘Others’ occupy the second half of the cost curve andcan only survive given that prices are historically high14Cost curve, all products economic costsData: CRU. Note: (1) ‘Others’ exclude Australia, Brazil, South Africa and India.Dominated byRio Tinto, BHPBilliton and ValeAllproductseconomiccosts,c/dmtuCumulative production, Mt
  • 15. Potential production – where next?West Africa and CanadaData: CRU.What underpins the costcompetitiveness of a mine operation?•  Quality of ore deposit•  Geology of ore deposit•  Economies of scale•  Infrastructure and logisticalconsiderations15
  • 16. CRU’s gateway system16Project status checklist1 2 3 4 5Speculative Possible Probable Committed OperatingGeologyMetallurgy/technologyEngineeringSocial andenvironmentalMarketing/commercialTransportationOwnership/managementFinancial
  • 17. West Africa and Canada have significant reserves andresources, both of a similar magnitude…Data: CRU, MEG.Reserves and resources for a selection of production hubs, Mt020000400006000080000100000120000West Africa Canada EuropeTotal reserves and resources tonnageFe contained total reserves and resources17
  • 18. …yet West Africa has two key advantages: (1) Fe grade, and(2) distance to China. But what about political stability?Data: CRU, MEG.Weighted average grade, % Fe0% 10% 20% 30% 40%West AfricaCanada Origin Distance, km Units 2012 2020Canada 14,675 $/wmt 24.6 37.4West Africa 9,727 $/wmt 18.9 28.8COST TO CHINA:18
  • 19. Investment is critical in West Africa given large-scale capexrequirements…Data: CRU.010000200003000040000500002014 2015 2016 2017 2018 +Capex of selected key projects by anticipated start date of project, $M19
  • 20. …with the key to unlocking this region being the co-operation of producers in close proximityData: CRU.Potential capacity by infrastructure corridor, Mt0 20 40 60 80 100 120Kalia-Matakan, GuineaPepel-Tonkolili, Sierra LeoneKribi-Mgarga, CameroonTrans-Congo lineWestern Range-Buchanan20
  • 21. 0%20%40%60%80%100%0501001502002503003502010 2012 2014 2016 2018 2020 2022 2024PossibleProbableCommitted% share of total productionwhich is CommittedINDICATES RISK2017 production forecastWest Africa: fast short term growth from low base butvolumes remain limitedLHS: Iron ore potential production in Other Africa, MtRHS: Share of total potential production in Other Africa which is ‘Committed’(1), %Data: CRU. Note: (1) Committed in accordance with the CRU Gateway System.21
  • 22. 0501001502002010 2012 2014 2016 2018 2020 2022 2024Total potential productionCanada: New entrants will spur on short term growth butrising proportion of new greenfield projects lifts long run riskIron ore production potential in Canada, MtData: CRU.2017 production forecast22
  • 23. 5 year outlook: West Africa and Canada will not increasetheir market share to any significant degreeShare of global seaborne exports by country/region, %Data: CRU.0%25%50%75%100%2012 2017OtherCanadaWest Africa23
  • 24. Key questions:•  It’s all about supply…why?•  What happened to supply potential when prices crashed in Q3 2012?•  Who’s new and what are their chances?•  Will traditional supply hubs maintain market share?•  Can the drive for self-sufficiency in China translate into increasing ore production?Agenda24
  • 25. Demand is set to post y/y increases (yet growth is set toslow)…25LHS: Consumption of iron ore, MtRHS: y/y change in global consumption of iron ore, %Data: GTIS, CRU.-40%-30%-20%-10%0%10%20%30%05001,0001,5002,0002,5003,0002008 2009 2010 2011 2012 2013 2014 2015 2016 2017China Other East Asia South Asia Europe North AmericaCIS C & S America Other World y/y change
  • 26. …which will predominantly be met by rising supply fromlow-cost traditional hubs. India’s role will shrink further.26Data: GTIS, CRU.0%25%50%2008 2010 2012 2014 2016AustraliaBrazilIndiaShare of global iron ore exports by selected country, %-60-30030602012 2013 2014 2015 2016 2017AustraliaBrazilIndiaY/y change in exports of iron ore, Mt
  • 27. CRU expects the majors to hold market share despite thevast number of potential new entrants. Costs are key.27Selected companies shares of total iron ore exports, %Data: GTIS, CRU. Note: only includes BHP Billiton’s Western Australia operations, Rio Tinto’s Western Australia operationsand Vale’s Brazilian operations (excluding their Samarco share).0%10%20%30%40%50%60%70%2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017BHP share of global exportsRio Tinto share of global exportsVale share of global exportsRio Tinto, BHP Billiton and Vale share of global exports
  • 28. Key questions:•  It’s all about supply…why?•  What happened to supply potential when prices crashed in Q3 2012?•  Who’s new and what are their chances?•  Will traditional supply hubs maintain market share?•  Can the drive for self-sufficiency in China translate into increasing ore production?Agenda28
  • 29. Private Chinese mines use local labour, transport and utilitiesto minimise mining costs which, nevertheless, remain high…30Mine owneroperatescentralprocessingplantMine1Mine3Mine2Fixed price paidper tonne ofRoM oredeliveredLabour:Use localfarmersTransport:Use localtrucksUtilities:Use localsources ofpower,fuels etcData: CRU.
  • 30. …and, indeed, without the small, private Chinese minesthe tail of the cost curve becomes far flatterRepresentative global cost curve31Cumulative productionOperatingcostMajorsLower-costemergingproducersChina SOEs/largeprivate minesChina,smallprivateminesHigh-costemergingproducersData: CRU.
  • 31. Chinese miners are the marginal producers and are highlyprice responsive32Data: CRU. Note: Prices assessed at one point mid-month.Assumption = as low cost supply rampsup, Chinese miners will be squeezedfrom the market and therefore domesticproduction will fallCan this change given the drive forself sufficiency?X-axis: Quarterly production, MtY-axis: 62% Fe fines price, CFR China0501001502000 20 40 60 80HistoricForecast
  • 32. CRU view – Chinese domestic production will fall, albeitgradually…32-5%0%5%10%15%20%25%30%0.00.51.01.52.0200820102012201420162018202020222024202620282030Diesel pricey/y changeLHS: China diesel price, US$/lRHS: y/y change in China diesel price, %WHY?  Upwards costs pressures  Little chance of consolidation  Fast rate of growth of low-costinternational supply  Attractive opportunities overseasinvestment opportunitiesTHE STRUCTURE OF THE CHINESE MININGINDUSTRY IS SET FOR CHANGE
  • 33. …meaning that growth in seaborne trade will outstrip thatfor total consumption33LHS: Seaborne imports of iron ore, MtRHS: y/y changes in seaborne imports and global iron ore demand, %Data: CRU, GTIS.-10%0%10%20%30%04008001,2001,6002010 2011 2012 2013 2014 2015 2016 2017Seaborne imports y/y change in seaborne importsy/y change in global iron ore demand
  • 34. To conclude (1): No-where is free from supply-side risks andCRU assesses that these have intensified recently34Data: CRU.AUSTRALIA Strong Aus $ Labour shortage Port accessBRAZIL Particularly strict environmentalregulations (i.e. cave law) Uncertainty over increase in royalties Port access AFRICA Political instability (extent dependent on country) Construction of infrastructure from scratch (WestAfrica)/restrictions imposed by Transnet (South Africa) Uncertainty around development of mining regulations(West Africa)CANADA Distance to key markets Weather restrictions Necessary development of new port and rail(potential aid from Plan Nord)FOR ALL Securing finance Building bulk commodity infrastructure Existing sites – grade depletion
  • 35. The CRU view:•  It’s all about supply…why?The rate of supply developments will determine price given our expectations that demand has still far further to run•  What happened to supply potential when prices crashed in Q3 2012?Sentiment plummeted… investment jitters soared… cautiousness emerged… cost controls grew… = supply scaled back•  Who’s new and what are their chances?West Africa and Canada are at the heart of new supply potential – barriers to entry have increased of late•  Will traditional supply hubs maintain market share?Yes, given aggressive project plans and expectations of competitive cost structures•  Can the drive for self-sufficiency in China translate into increasing ore production?The government drive for self sufficiency is unlikely to stop an overall falling production trendTo conclude (2)35
  • 36. Thank you for your attentionwww.crugroup.comIron ore analystlaura.brooks@crugroup.comBusiness development manager – Australasiaphilip.sewell@crugroup.com36
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