The Iron Ore Market

The steel industry is facing its worst demand downturn since the oil crisis of 1974-1975 and the iron ore market is of course affected. The main reason for the fall in steel demand is that steel is a key input in the construction, mechanical engineering and transport vehicle industries, sectors that are among the hardest hit in the current global economic recession. Price negotiations for iron ore were again drawn out and were not completely concluded at the time of writing. The benchmark pricing system is under attack and its future looks bleak.

World use of finished steel products decreased in 2008 by 1.4 % to 1,197 Mt. Steel use fell in the developed world, which entered recession earlier, while it continued rising in most developing countries. In China, steel use increased by 2.9 %, and increases were also recorded in other Asian countries and in Latin America. The recession has also led to a very large slowdown in trade. Following a strong performance in the first nine months of 2009, the volume of world trade in steel (average of exports and imports) declined by 20 % in the fourth quarter from a year earlier. The reaction of steel trade in the current cycle has been much stronger than during the past episodes of weak demand. This is the result of exporters' reduced access to credit to finance shipments and the intensity and scope of the current global demand contraction. World crude steel production decreased by 1.5 %, from 1345 Mt in 2007 to 1325 Mt in 2008. All regions except Asia experienced falls in production.

International iron ore trade also reached a new record level in 2008 as exports increased for the seventh year in a row and reached 882 Mt, up 7.8 %. Total iron ore exports have doubled since 1999. Brazil's exports increased by 4.5 % to 282 Mt in 2008. The increase was smaller than last year and pushed Brazil back again to second place among iron ore exporting countries. With over 300 Mt and an increase on 2007 of 16 %, Australia is now again exporting more iron ore than Brazil. Indian exports grew for the ninth consecutive year and the country is now, at 101.4 Mt, the third most important exporter. China is still by far the world's largest iron ore importer. In 2008, its imports were 444 Mt, an increase by 16 % compared to 2007. Japan's imports increased by a comparatively modest 1.1 % to 140 Mt. European imports (excluding the CIS countries), which fell by 5.0 % in 2008, reached 164 Mt, corresponding to 18 % of world imports.

The 2009 price negotiations have been very drawn out and at the time of writing in mid-June they are still not concluded. While the "Big 3" producers, Vale, Rio Tinto and BHP Billiton, have all reached agreements with some of their customers, no deals have yet been made with Chinese steel companies.

The market share of the "Big Three" decreased to 34 % in 2008. They have not managed to increase their production quite as fast as total world production, mainly because of a fast expansion by small producers in India and China in 2005-2007 and in late 2008 also because of cuts in production. The level of concentration has thus been more or less constant during the last couple of years.

New iron ore mining capacity taken into operation in 2008 was reported to be about 88 Mt globally, a lower figure than in 2007. The total project pipeline contains more than 430 Mt of new production capacity to come on stream between 2009 and 2011. Of this total, around 172 Mt falls into the category "certain", 54 Mt "probable" and 204 Mt "possible". About 73 % of the projects labelled as certain are in Australia. South America has 6.9 % of the certain projects and Africa accounts for 7.5 % of the certain projects. While West Africa is making a reappearance as a potential iron ore producer the only project labelled certain in that region is in South Africa.