Iron ore market is global and trade of iron ore is very significant in terms of value. Only trade with oil and coal exceeds trade in iron ore. Upwards of 98% of the mined iron ore is used in steel production. The long-term trend for global steel production is still rising and global demand remains strong despite the slowdown in growth in China.
Products and pricing
There are mainly four types of iron ore products; concentrate, sinter feed, pellets and lump ore. Concentrates are generally used in the production of sinter and pellets, which then makes the iron ore suitable to go into the blast furnace ironmaking process. Lump ore can be directly charged to blast furnace process without further processing. The company is expected to produce a concentrate which is a “pellet fines” product with about 69% iron content for delivery to the steel industry in Europe, the Middle East and Asia.
Iron ore Pricing – Iron pricing is now generally based upon delivered price of iron ore to China, reflected in the main indices, the IODEX 62. This represents the main traded iron ore at 62%Fe and reflects the vast majority of traded ores. A futures market has also grown in strength during the past few years and now forms a valuable prediction of the pricing for up to 3 years ahead. Iron ore traded to other parts of the globe often use the “Vale formula, which essentially reflects the FOB price of ore delivered to China with freight to the new destination added. In reality there are longer term deals completed between seller and buyer.
More recently the market has tried to reflect the increased demand for high quality iron ores in response for demand from China in particular, as it tries to improve the environmental emissions from the industrial sector, particularly the mining and steel related industries. This has seen the growth in trade of the >65%Fe ores and the strengthening of the use of the IODEX 65. This is seen as a long term trend in demand and expectations of the long term high differentiation of the quality iron ores. The counter balance to this is the IODEX 58, which reflects the low qualities or iron ores, which are expected to only be offered at substantial discounts.
The global trade in iron ore
The most important parameters of steel producers around the world is the ability to choose the iron ore from the supply that provides ore at the best value for quality. To address these factors successfully while simultaneously maintain good economic results, the iron ore mines should aim to have as high iron contents as possible in their products and provide a good logistic solution for cost effective delivery (ie proximity) to the customer.
World production of iron ore has risen by over 100% in the last 10 years or so with global production topping the 2 billion tonnes per year (bnt/y) according to UNCTAD. Global seaborne trading of iron ore is around 1.5bnt/. Whilst the rate of growth in China has slowed, it is now around the 5% per year area, it is of a very large total, with China accounting for close to 1bnt of iron ore imports, or close to 66% of the global seaborne market.
Continued development in other Asian countries in particular keep demand ticking over. Though the biggest area of growth is predicted to be in the high quality sector where analysts CRU predict that demand for high quality pellet feed material could increase by as much as 70Mt/y over the next 10 years or so. Other countries in the Asia and MENA regions will also be looking for higher quality ores as they seek to improve steel qualities, reduce carbon and other emissions.
The three largest companies active in the iron ore industry, Brazilian Vale and Anglo Australian companies Rio Tinto and BHP Billiton, effectively control close to 50% of world production of iron ore between them. Annual production is estimated for 2017/18 year at around 390Mt/y, 360Mt/y and 280Mt/y respectively for those companies”.
Other major producers includes Anglo American Group and FMG of Australia, add around 240Mt/y when in full production means that around 85% of global seaborne trade in iron ore is in the hands of 5 companies.
In western Europe there found a few mines, where Swedish LKAB, with three mines in operation in Kirunavaara, Malmberget and Svappavara, is the only mining company in this region of any significance on the world market, with production of high quality products, such as pellets reaching around 30Mt/y. In addition to LKAB, there are a number of Nordic iron ore projects which are at different stages of production or development, including the Nordic Iron Ore.