Brief overview of the worldwide iron ore market situation

Brief overview of the worldwide iron ore market situation

According to recently released research reports, worldwide steel consumption is expected to increase gradually throughout 2006. China is of course the main market where an increase in steel demand will be seen, followed by Brazil, India and the Middle East as a whole. Worldwide steel consumption is expected to increase by an average of 4 percent in both 2005 and 2006. Chinese consumption is expected to grow 10% or more, with the country pushing the 300 million ton mark this year. In view of the forecasted increase in worldwide steel consumption, raw material prices will inevitably increase too. With this in mind, companies that supply raw materials are taking necessary steps to be in a position to meet future demand from the steelmaking industry. Iron ore suppliers increased their prices by as much as 71.5 percent earlier this year, and steelmakers are finding it increasingly difficult to secure additional deliveries. This situation has led some steelmakers to seek out alternative solutions – such as participating in iron ore production projects – to secure their iron ore supply. - Baosteel China has invested in iron ore production in India, and it is participating in a project with Brazil’s CVRD. - South Korean POSCO has entered into agreement with the Indian government to invest in a 12 million ton annual capacity steel mill and a 30 million ton capacity iron ore mine in Orissa, India. Such examples prove that the strategies of mining companies and steel mills are becoming increasingly geared towards developing corporations. This is observed particularly in Russia, India and Brazil, with the main intention of companies to ensure the forward deliveries of material. Experts mention that coking coal demand in the market will once again exceed supply, whereas the iron ore market will be rather balanced. This expectation is based on the significant investments carried out by iron ore companies to expand production capacity. After following a stable trend of production level for more than twenty years, the investments will be taking the total iron ore production capacity to 1.5 billion tons towards the end of 2008, a rise that can be interpreted as a 45 percent increase compared to 1999. Without a doubt, the market situation in China has a great influence on iron ore demand. Steelmaking capacity has increased in China significantly during the past years, making the country the biggest steel producer worldwide. Predictions are that the steel output of the country will reach 300 million tons this year. In line with such figures, China aims to improve local production of iron ore so that it need not be overly dependant on imports. This year, total iron ore output is expected to increase to 370 million tons from last year’s 310 million tons. "The average iron ore output in China could reach 500 million tons annually over the next three to four decades according to proven reserves," said Zou Jian, chairman of the China Metallurgical Mining Enterprise Association. China’s foreign iron ore demand is likely to fluctuate in parallel with the steel output growth. Now that the central government has implemented a series of macro-control measures, demand could become comparatively moderate. China's iron ore imports will amount to 240 million tons this year, up from 208 million tons last year and 140 million tons in 2003, authorities in China say. The main suppliers of iron ore to China are Australia, India, and Brazil, with Canada, Peru and South Africa adding a small amount.