The iron ore market is global, and trade in iron ore is very significant in terms of value. Only trade in oil and coal exceeds the trade in iron ore. Upwards of 98% of mined iron ore is used in steel production. The long-term trend for global steel production is rising, and global demand is strong, primarily driven by growth in developing countries such as China. One clear trend is the increase in the price premium for high-quality iron ore. There is thus cause to talk about a two-tier market – one for standard products and one for high-quality iron ore. This means the market in the segment where Nordic Iron Ore will be active continues to be strong.
Products and pricing
There are mainly four types of iron ore products: concentrate, sinter feed, pellets and lump ore. Concentrates are used in the production of sinter and pellets, which then go into the blast furnace iron-making process. Lump ore can be directly charged to a blast-furnace process without further processing. The company will primarily produce a concentrate that is a pellet fines product, with about 69% iron content, for delivery to the steel industry in Europe, the Middle East and Asia. Before 2010, the price of iron ore in long-term contracts was determined by traditional and annual price negotiations between the largest ore and steel producers. These published prices were then used as a guide for other contracts. A spot market has emerged in China in recent years. Today, contract prices are mainly set on a quarterly basis based on the spot price for deliveries of 62%Fe ore concentrate to Chinese ports. Products with a higher iron content are traded at a premium.
Higher price premium for high-quality iron ore
The global market price for iron ore can be broken down into two categories: one for products with lower iron content and one for products with higher iron content. This two-tier price development has increased in recent years.
The explanation is primarily a stricter environment policy, in particular in China, which leads to higher demand for ore with higher iron content. Lower quality ore has higher content of other minerals that also need to be liquefied, which requires additional energy. This energy often comes from coal and coke, which leads to higher environmentally harmful emissions.
The trend of higher prices for high-quality iron ore compared to lower quality iron ore is expected to continue and prices will probably also rise. Steel production is associated with large CO2 emissions – 98 per cent of the mined ore is used in steel production – and the restrictions on emissions are becoming increasingly rigorous, not just in China but in the world in general. Overall, this means the market for the segment where Nordic Iron Ore will be active will continue to be strong.
Sweden largest producer in the EU
Sweden is the largest iron ore producer in the EU (largest in Europe with the exception of Russia and Ukraine), and the eleventh largest in the world. The Swedish percentage of the global production amounts to 1.3 per cent. The single largest producer in Sweden is LKAB, which is owned by the Swedish state and mines approximately 80 per cent of all iron ore in the EU. In 2019, LKAB produced 27.2 million tonnes of iron ore, and sales the same year amounted to SEK 31.3 billion. More than 80 per cent of the company’s sales consist of pellets.
The world’s largest iron ore producer is China, followed by Australia and then Brazil. Sweden is the eleventh largest producer in the world.