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Global Iron Ore Report: Iron Ore Prices Remain Relatively High

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 GLOBAL IRON ORE REPORT
Iron Ore Prices Remain Relatively High
Robust steel demand paired with iron ore production problems pushes the market into
deficit; new capacity is waiting in the wings
By Anton Löf, Magnus Ericsson & Olof Löf
Production capacity at Vale’s S11D project in Carajas, Brazil, has increased in both 2017 and 2018. (Photo: Ricardo Teles)
The fundamentals of the steel market
weakened considerably during the second
half of 2018. The OECD, in its Steel Mar-
ket Developments Q2 2019 points toward
important headwinds that persist for the
steel industry. These include a weaken-
ing global economic outlook, the increase
in trade frictions, excess capacity and a
pickup in capacity investments.
World crude steel production grew to
1,808 million metric tons (mt) in 2018,
a new global all-time high. This is an in-
crease of 4.5% over 2017, and the third
consecutive year of growth.
Chinese crude steel production in-
creased by 57 million mt in 2018, an in-
crease of 6.6%, compared to an increase
by 3% in 2017. At 928 million mt China
continues to be, by far, the largest pro-
ducer. Output by the second largest pro-
ducer India was 107 million mt of crude
steel in 2018. In 2018 51% of total
world crude steel was produced in China
a slight increase from the year before.
According to the OECD, global steel-
making capacity remained nearly un-
changed in 2018, after declines in capac-
ity for both 2016 and 2017. The current
global steelmaking capacity is calculated
34 E&MJ • NOVEMBER 2019
EMJ_pg34-39.indd 34
by the OECD to be 2,234 million mt, a
decrease of around 0.3% or a little more
than 6 million mt from the revised figures
of 2017.
The gap between capacity and produc-
tion has further narrowed over 2018 as
production has increased while capacity
has decreased slightly. The OECD esti-
mates the global capacity utilization (pro-
duction of steel as per cent of capacity)
to be 81% up from 77.2% in 2017. The
capacity utilization has not been at such
high level since 2008.
Australia leads the world in iron ore production followed by Brazil and India.
Since year 2000 global steelmaking ca-
pacity has increased by 1,178 million mt.
Meanwhile, steel production over the same
period, 2000-2018, rose from 848 mil-
lion mt to 1,808 million mt. Hence over-
capacity has increased from 208 million
mt in 2000 to 426 million mt in 2018.
However, expressed as utilization ratio this
is an improvement from 80% in 2000 to
the previously discussed 81% in 2018. It
is however only recently that the capacity
utilization ratio has increased. In 2015 the
utilization ratio was at its lowest during re-
cent years and fell to 70%. 2015 is also
the year with the highest recorded capacity
2,334 million mt. Since then more steel
capacity has been shut down than what
has been installed while at the same time
production of crude steel has increased.
However, at present there are new
projects adding 88 million mt of gross
capacity scheduled to come on stream
during the period 2019-2022. In addi-
tion to this some 22 million mt of addi-
tional capacity increases are in planning
stages for a possible start up during the
same period. China on the other hand is
planning to close down and restructure
its steel industry which should reduce ca-
pacity slowly within the country.
Global exports of finished and semi-fin-
ished steel products reached 457 million
mt in 2018, down 1.3% from 463 million
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11/8/19 10:43 AM
 GLOBAL IRON ORE REPORT

mt in 2017, the second year of consecu-

tive decreases in trade of steel. China is the
main exporter with 69 million mt or 15%
of total exports down 8.0% from 75 million
mt in 2017. EU exported a total of 147
million mt of which 119 was sold to other
EU countries. Other major exporting coun-
tries are: Japan 36 million mt, Russia 33
million mt and South Korea 30 million mt.
Global steel demand recovery from
2016 supported a rebound in steel prices
from their lows in 2015 and early 2016.
Steel prices which has trended down-
wards since 2011, rose sharply in 2016
and continued to increase during 2017 Iron ore exports are a function of steel production and China by far remains the largest importer.
and into 2018. Since May 2018 when
both flat and rebar steel prices reached Asian production, which reached a peak in falling production in China, the share of
a high, prices have declined steadily. The 2007 at 647 million mt, has come down iron ore being produced by developing
price levels of steel futures, as measured considerably since, mainly due to shrink- countries has declined from top levels at
on NYMEX, also point toward falling steel ing output in China and India. However, in 76% in 2007 to around 45% in 2018.
prices in the short term. 2016 Chinese output bottomed out around
Prices for the key steelmaking raw ma- 100 million mt and production increased Iron Ore Trade
terials (iron ore, coking coal and scrap) de- in both 2017 and 2018 when it reached Global iron ore exports increased by 2.1%
clined between early 2011 and late 2015 some 146 million mt. The national Chi- in 2018. World total iron ore exports have
beginning of 2016 contributing to lower nese production figures for un-beneficiat- increased roughly 64% during the last 10
steel production costs. Prices for the three ed ores decreased by 40% to 793 million years and amounted to 1,584 million mt
main raw materials have since started to mt in 2018. In India, the downward trend in 2018 compared to 1,552 million mt in
recover. The margin between raw materials has turned, with an increase in production 2017. Australia is by far the largest ex-
costs and steel prices increased between since 2014. In 2018 production grew to porter of iron ore with a market share of
2013 and the second half of 2016 when, 205 million mt, a 1.4% increase. 53%, an increase of one percentage point
because of the sharp increase in the price In Europe, including the CIS, produc- from last year. During 2018, Australia’s
of coking coal, the margins dropped sharp- tion increased by 6.7% in 2018, up to 231 exports continued to increase, reaching
ly. Since then margins have increased, but million mt. African production fell by 3.1% 835 million mt, an increase of 2.8%. The
in 2018 margins fell but were still fairly to 83 million mt in
high compared to the last 10 years. 2018, and output Regions and major producing countries 2016 2017 2018
by the two major Canada 00,46.7 00,50.3 00,52.4
Iron Ore Production producing coun- USA 00,41.8 00,47.9 00,49.0
Global output of iron ore increased by tries, South Africa Brazil 0,434.0 0,435.5 0,448.0
a modest 1.1% to 2,241 million mt in and Mauritania, Mexico 00,18.3 00,17.7 00,13.6
2018. The increase is divided between both declined, the Subtotal Americas 0,573.7 0,583.6 0,592.4
several producing countries. Australia con- former by 1.6% and
Sweden 00,26.9 00,27.2 00,27.5
tinues to grow faster than Brazil in abso- the latter by 8.6%.
CIS 0,202.0 0,182.2 0,193.0
lute terms and added some 16 million mt During the last
Subtotal, Europe 0,235.8 0,216.2 0,230.7
to its output while Brazil added around 13 decade, with the ex-
million mt over the year. In 2018, the for- ceptional increase Mauretania 00,13.3 00,11.8 00,10.8
mer thus grew by 1.8%, to 901 million mt, in production from South Africa 00,66.5 00,62.7 00,61.7
and the latter by 2.9% to 448 million mt. Australia and the Subtotal, Africa 00,91.1 00,85.3 00,82.6

India 0,184.5 0,201.8 0,204.7

Jan-Sept Jan-Sept % China 00,99.3 0,134.7 0,145.8
Company 2018 2019 Increase Subtotal, Asia 0,373.6 0,442.8 0,430.2
Vale 283.7 224.1 -21.0%
Rio Tinto 215.8 209.8 0-2.8% Australia 0,858.0 0,885.4 0,901.1
BHP 182.7 179.7 0-1.6% Subtotal, Oceania 0,861.5 0,889.4 0,904.6
FMG 126.1 136.5 0-8.2% World Total 2,135.7 2,217.2 2,240.5
Anglo American 010.5 016.6 -58.1%
*Chinese production adjusted to represent tonnage in which iron
LKAB 006.8 007.3 0-7.4%
content is roughly equal to average content in the rest of the world.
Total 825.6 774.0 0-6.3% Chinese ore production (unadjusted): 1,296.3 1,321.6 0,793.1

Total iron ore production among the majors is down 6.3% so far this year. Global iron ore production grew by 13.3 million mt in 2018.

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EMJ_pg34-39.indd 35 11/8/19 10:43 AM

 GLOBAL IRON ORE REPORT
After peaking in early July at $123/mt, iron ore prices have now stabilized around $90/mt.
second largest exporter, Brazil has a mar-
ket share of 25%, also an increase of one
percentage point compared to last year.
Brazilian exports grew by 2.7% in 2018
and reached 390 million mt.
South Africa exported 63 million mt of
iron ore in 2018, which makes it the third
largest exporter. Ukraine at 58 million mt
is the fourth largest followed by Canada
with 47 million mt. Together the five most
important iron ore exporting countries ac-
counted for 88% of total exports in 2018,
up from 86% in 2017. India’s exports fell
sharply in 2018 down by 35% reaching 19
million mt, the country will most probably
move to become a net importer of iron ore
as domestic steel production increases.
China alone accounts for 68% of to-
tal imports. During 2018, the country’s
imports of iron ore decreased 1%. The
latest decrease in Chinese iron ore yearly
imports were in 2010. During 2018 Chi-
na also increased its iron ore production,
but import dependency is still some 88%
which is the same as last year’s figure.
In 2018, the seaborne iron ore trade
increased by 1.9% to 1,527 million mt.
As in earlier years, the increase was en-
tirely due to higher Chinese imports.
Iron Ore Pellets
Global pellet production in 2018 in-
creased to 478 million mt, up 0.7% com-
pared to 2017. Exports of pellets also
grew in 2018 and reached 141 million
mt, up 0.8%. The largest iron ore pellet
exporters are in order: Brazil, Sweden,
Ukraine, Canada and Russia.
36 E&MJ • NOVEMBER 2019
EMJ_pg34-39.indd 36
The share of pellets in total iron ore
production has declined since the late
1990s when it ranged between 26%-
27%. The Mariana dam failure and the
subsequent closure of the Samarco pro-
duction units have underlined the sensi-
tivity of pellet demand to world market
conditions and prices. In 2017 the share
of pellets to total iron ore produced was
22%, up from 21% the previous year.
Iron Ore Prices
Iron ore prices, 62% Fe CFR China, in
2018 were relatively stable and moved be-
tween $60/mt and $80/mt. Last year began
with $74/mt and reached its peak already
in January at USD $78/mt. A gradual de-
cline followed that took the price to $63/mt
in April from where a slow climb took off.
By the end of the year the price was $69/
mt. The average price for 2018 was $69/
mt which is down 1.5% compared to 2017.
On January 25, 2019, the Brumadin-
ho tailings dam operated by Vale col-
lapsed killing at least 248 people. The
catastrophe happened three years and two
months after the Mariana dam disaster.
The latter event has kept Samarco, who
operated the dam, from production since.
The latest disaster pulled an estimated 90
million mt of capacity from the market ini-
tially. As Vale’s operations reopened, that
figure was reduced to an estimated 60
million mt, which effectively pushed up
the price of iron ore. From January 2019
the price took off and reached a peak in
early July at $123/mt. A sharp drop in
the iron ore price ensued in August when
it lost around 30% of its previous value.
However, the price has since stabilized
just over $90/mt. This is, compared to
most forecasts from earlier years, a high
price. The average price so far 2019, up
till mid-October, is $94/mt an increase
from last years average price of 36%.
The fundamentals and mechanics of
the new spot market iron ore pricing sys-
tem are after around 10 years widely ac-
cepted and working well. But the market is
still evolving with, for example, more qual-
ities being tracked. When the benchmark
pricing model fell apart in 2009/2010 the
dominating 62% Fe qualities exported
from Australia became the globally rec-
ognized pricing basis. The 62% Fe price
worked well as a basis for price setting of
various qualities through the boom years
as most steel companies were struggling
to get enough iron ore to feed their blast
furnaces. In recent years both buyers and
sellers have started to question the spot
market pricing system. Sellers maintain
that it underplays the value in use for high-
er grade ores as the vast majority of ores
traded is of mid or low grade. Buyers ques-
tion it as a majority of the quantities used
to establish the 62% Fe price index is
based on ore traded by only one producer.
The global increase of iron ore production
during the last decade consisted mainly of
lower-quality ores with iron content less
than 62% Fe. The average iron ore import-
ed to China was, as an example, closer to
61% Fe in 2018. Lately there has been a
push globally for improved steel productiv-
ity and China has further been attempting
to reduce environmental problems and to
diminish waste of energy. Both of these
trends benefit higher grades of iron ore.
Project Pipeline
In 2018 global production of iron ore
increased by 23 million mt. The larg-
est production increases were recorded
in Australia, Brazil, Ukraine and China.
Naturally most developments are under
way in the two largest iron ore producing/
exporting countries: Australia and Brazil.
Further, with the high prices some African
projects have attracted renewed interest.
Some mines which were closed down
have been considered for reopening.
In Brazil, Vale continues to develop
the S11D mine located in their Northern
System, which is to reach full capacity in
2020. The company also plans to increase
production another 10 million mt/y within
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11/8/19 10:43 AM
 GLOBAL IRON ORE REPORT

the Northern System. Currently the project
is 5% completed and is expected to be fi-
nalized by the second half of 2022. Also,
in Brazil, Anglo American’s Minas-Rio mine
is moving along with their stage 3 expan-
sion that will take the mine to 26 million
mt/y, currently the company is operating
at roughly 90% of full capacity. The Ger-
mano mine, operated by Samarco, closed
since the Mariana dam disaster in Novem-
ber 2015, is estimated to come on stream
again in 2020 and reach its full capacity of
32 million mt/y after a ramp up period.
In Australia there are several large-scale
projects under way. FMG’s Iron Bridge Mag-
netite project is set to reach full capacity,
22 million mt/y, by mid-2022. Another
FMG project, Eliwana is set to commence
production in late 2020 and have a capac-
ity of 30 million mt/y. Rio Tinto’s Koodaid-
eri project is planned to start production in
late 2021 and have a capacity of 43 mil-
lion mt/y. Finally, BHP’s South Flank mine
is planned to replace existing production
from the Yandi mine, with production start
in 2021 at a capacity of 80 million mt/y.
In Africa developments have taken
place and projects are slowly revitalized.
In the Republic of the Congo, for exam-
ple, the Zanaga project, a joint venture be-
tween Zanaga Iron Ore and Glencore, is ex-
pected to produce 12 million mt/y in a first
stage and raising output to 30 million mt/y
in a second stage. In the DRC, the Sapro
group exported its first tonnages in Q1 of
2019. The company plans to produce 12
million mt/y for export, mainly to China. In
Guinea the Simandou block 1 and 2 have
been prepared for an auction, the project
was earlier owned by Rio Tinto. Also close
by, on the border to Liberia are the Zogota
and Nimba projects under development.
In Canada Tacora Resource has re-
started the Scully mine previously owned
by Cliffs Natural Resources. The company
announced its first delivery in August 2019
and capacity should reach 6 million mt/y
before 2021. Another example of a closed
down mine getting a new life is the Sydva-
ranger mine in northern Norway that is set to
start production again sometime in 2020.
All in all, the scene seems to be set for
a considerable increase in iron ore produc-
tion in 2020-2021, if all projects move
ahead as planned. This could indeed be
the foundation for an oversupplied market.
Corporate Concentration
Corporate concentration in the iron ore in-
dustry has remained fairly constant over
the last couple of years. In 2018 the 10
largest companies controlled 62.8% of
the production a modest increase from
2017 (62.7%) and 2016 (62.4%). The
earlier trend of decreasing concentration,
due to swift production increases by many
small and medium sized producers during
the 2005-2008 period, was reversed in
2009. At that time, the major producers
got their large expansion programs up and
running. Since then, industry concentra-
tion has increased slowly but steadily.
The ‘Big 3’ iron ore mining companies
(Vale, Rio Tinto and BHP) have also
steadily increased their control over total
world iron ore production 2018 the com-
panies’ combined control reached 42.4%
up from 41.3% in 2017.
Vale, the Brazilian giant mining com-
pany, remains the world’s largest iron ore
producer, with 385 million mt of iron ore
production in 2018, up from 367 million
mt in 2017, a new all-time high. After
a slight decrease in production in 2016,
because of the Mariana dam failure, new

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EMJ_pg34-39.indd 37 11/8/19 10:43 AM

 GLOBAL IRON ORE REPORT
Company Country
01 Vale Brazil
02 Rio Tinto (share) U.K.
03 BHP (100%) Australia
04 Fortescue Metals Group Australia
05 Hancock Prospecting Australia
06 ArcelorMittal U.K.
07 Anglo American U.K.
08 State of India* India
09 Metalloinvest Russia
10 CSN Brazil
Total Top 10 Companies
Total World
*State of India comprises NMDC and Odisha Minerals
Vale remains the largest iron ore producer among the Big Three.
production capacity at the S11D project
in Carajas has come on stream and pro-
duction has increased in both 2017 and
2018. All of Vale’s mines are located in
Brazil and its market share rose from
16.5% in 2017 to 17.2% in 2018, down
from the peak of 18.8% in 2007.
Rio Tinto has been the second largest
producer since 2016, when it overtook
BHP and regained its traditional second
rank. Rio produced 291 million mt in
2018 up from 283 million mt in 2017.
Rio Tinto has a market share of 13%, a
slight increase since 2017. Rio Tinto has
most of its mines in the Pilbara region
in Australia, and in addition controls the
Iron Ore Company of Canada with mines
in Labrador.
BHP managed to increase its market
share from 12.1% to 12.2% as produc-
tion reached 274 million mt in 2018.
Except for the Samarco joint venture in
Brazil together with Vale (50/50), which
has not been producing since 2015, all
of BHP’s mines are in Western Australia.
Hancock Prospecting, the privately
owned emerging Australian iron ore giant,
controlled by Gina Rinehart, has grown
rapidly in the past two years. The compa-
ny, which owns the Hope Downs mine in
Western Australia together with Rio Tinto,
has gradually started up its Roy Hill Mine.
Production began in 2016 and has cat-
apulted Hancock into rank 5 among the
world’s largest iron ore miners. In Decem-
ber 2018 the company further acquired
Australian miner Atlas Iron to further
boost its iron ore production.
However, the measurement of corpo-
rate control at the production stage un-
derestimates the real concentration of
38 E&MJ • NOVEMBER 2019
EMJ_pg34-39.indd 38
economy at this point in time. Or as the
Production % of Production Rank
IMF puts it “the global economy is in a
2018 (Mt) World 2017 (Mt) 2016
synchronized slowdown”. The subdued
0,385 17.2% 0,367 01
growth is a consequence of increased
0,291 13.0% 0,283 02
trade barriers, elevated uncertainty
0,274 12.2% 0,268 03
around global trade and geopolitics, low
0,166 07.4% 0,175 04
productivity growth and aging popula-
0,076 03.4% 0,071 06
tions. From the point of view of iron ore,
0,059 02.6% 0,057 07
it is interesting to note that the IMF ex-
0,047 02.1% 0,062 05
pects non-commodity exporting countries
0,043 01.9% 0,042 08
to outperform the commodity exporting
0,040 01.8% 0,040 09
countries. Especially among developing
0,028 01.2% 0,026 10
countries. Downside risks to the IMFs
1,407 62.8% 1,389
forecast are further “elevated”. Negative
2,241 2,217
signals from trade barriers, geopolitical
tensions including Brexit could easily
hamper growth, confidence and invest-
ments. According to IMF, policies should
the iron ore sector, especially by the three focus on undoing trade barriers and re-
largest companies. Large portions of to- store confidence in the global economy.
tal output do not enter the market, but While monetary easing has supported
are produced at captive mines or mines growth, it is also important to acknowl-
which have a protected or restricted mar- edge the risk associated with monetary
ket. The corporate concentration, if mea- easing and measures should be taken to
sured by the share of the major companies ensure that financial risks are limited.
in global seaborne trade, is considerably During 2018 world crude steel produc-
higher. Vale alone controls 25.2% of the tion increased by 4.5% or 78 million mt.
total world market for seaborne iron ore For the first nine months of 2019 global
trade, and the three largest companies in steel growth was 4.4% compared to the
2018 controlled 60.1%, a decrease from same period last year. This points toward
63.4% in 2017. a continued industry growth. China alone
During 2019 a number of smaller accounts for more than half of the crude
producers have taken the opportunities steel production globally and the country’s
which the higher iron ore price during the production of crude steel grew by 9.1%
year has presented and restarted produc- in the first nine months of 2019 com-
tion from earlier closed mines. Examples pared to the same period 2018. However,
include such companies as Kaunis Iron Chinese production will most likely taper
and Tacora Resources. Also, China has in- off during the winter months with govern-
creased its locally produced iron ore. This mental restrictions on emissions and total
points towards a push downwards of the growth over the year is likely to be lower
corporate concentration. However, also than the current figure.
the majors have increased their produc- The World Steel Association’s Short
tion. Most probably, corporate concentra- Range Outlook October 2019 for world
tion will only change marginally into the steel use, anticipates an increase in world
next years. How much will depend mostly steel demand by 3.9% in 2019, followed
on the speed of expansion by the large by an increase of 1.7% in 2020 this
Australian producers as well as Vales abil- compared to a growth of 4.6% in 2018.
ity to restore their production and follow- China’s steel demand, which represents
ing up the ramp up of ongoing projects. 49% of total world demand in 2018, is
expected to increase 7.8% in 2019 and
Market Outlook 1.0% in 2020. In comparison to the
Global economic growth in 2018 reached World Steel Association’s earlier forecast
3.6% according to the IMF October World in October 2018, global growth in 2019
Economic Outlook update. This is down was forecasted at 1.4%.
from 3.8% in 2017 and is forecasted to China is moving towards lower GDP
drop to 3% in 2019. The 2019 forecast growth as well as a society where con-
is a 0.3 percentage point downgrade from sumption rather than investments is the
the previous report from the IMF and driving force of economic activities. This
shows the problems facing the global should negatively impact the growth po-
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11/8/19 10:43 AM
 GLOBAL IRON ORE REPORT

tential for steel demand. With lower steel 62% Fe price under pressure, a consensus place. Producers of high-quality ores
growth, the scrap ratio of the steel burden view is a price around $70/mt for 2020. might instead increase their production.
will also increase as more and more steel The spread of prices between the low,
becomes available for recycling. This will medium and high-quality iron ores can, Anton Löf and Olof Löf are with RMG
limit the demand growth for virgin units however, be expected to remain wide. Consulting, an independent consultan-
of iron ore. There seems to be a glut of low-quality cy firm based in Stockholm, Sweden.
Globally, the growth in production of ores and a deficit of high-quality iron ore www.rmgconsulting.org. Magnus Erics-
pig iron increased by 2.3% or 28.4 mil- products, especially pellets. If this situa- son is at Luleå University of Technology.
lion mt and direct reduced iron (DRI) tion continues a reduction of production For further details, contact Anton Löf at
increased by 13% or 11 million mt in by certain low-quality miners might take anton.lof@rmgconsulting.org.
2018. That would generate an addition-
al demand of roughly 61 million mt iron
ore globally. Global iron ore production in
2018 increased by 23 million mt, less
than demand. The iron ore market was
thus fairly balanced during 2018 with
stable prices. But with the January Bru-
madinho dam disaster, the iron ore mar-
ket came into a clear deficit and iron ore
prices have been high so far during 2019.
For the first nine months of 2019, six
major companies which reported quarter-
ly figures produced 774 million mt. This
represents a decline of 6.3% compared to
the same period last year. Vale shows the
largest decline, down 21%, but it is inter-
esting to note that all Big 3 shows reduced
production. Further, Brazilian exports for
the period January-September 2019 de-
creased with 14% compared to the same
period in 2018. Chinese imports during
the period January-August declined by
3.3% compared to the same period 2018.
Chinese imports thus totaled 686 million
mt for the first 8 months, or 1,029 million
mt on an annualized rate.
The spot price for 62% Fe fines deliv-
ered in China will probably remain rela-
tively high for the rest of 2019, with the
caveat that iron ore demand from China
may drop during the winter months caus-
ing a restocking at Chinese ports. How-
ever, looking at 2020 growth in steel,
as discussed earlier, is forecasted to be
lower than 2019. Further, as pointed out
scrap may take a larger share of the bur-
den than previously. This in combination
with the completion of Vale’s S11D and
the gradual increase of production and
export from Vale as well as the other big
Australian producers producing at capac-
ity peak, Rio Tinto estimates an increase
in production by roughly 12% for finan-
cial year 2020 and BHP forecasts an in-
crease of around 2% for 2019, the iron
ore market is set for a readjustment.
Iron ore production capacity will most
probably increase faster than iron ore de-
mand which should put the spot iron ore

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EMJ_pg34-39.indd 39
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