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Global iron-ore output sets record in 2011, says new report

The world iron ore market achieved an all-time high for production in 2011 of 1.92 bt, up 4.7% from 2010, largely on growing demand from China, according to a report from the United Nations.
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The UN’s trade and development agency UNCTAD said in its report Iron Ore Market 2011–2013 that world iron ore production continued to grow after the gradual post-crisis recovery of the global steel industry, as new mining capacity starting operation since May 2011 reached 125 mt.

Output of this commodity, vital for steel production, increased in most regions and countries except Europe (including CIS countries), where production stagnated, the report reveals. Among the major producers, Australia increased production by 12.7%, Brazil by 5.1%, and China by 2.1%.

Production in India declined to an estimated 196 mt in 2011, down 7.5%.

In 2011, international iron ore trade reached a record 1.115 bt as exports increased for the tenth year in a row, the report says. Developing countries accounted for 49.5% of total exports in 2011. Their exports of iron ore have grown by 104.8% since 2002.

The world recovery in crude steel production since the financial crisis has been almost entirely due to China, where production started increasing again in November 2008, and previous peaks in monthly production had already been matched by April 2009. Subsequently, China’s imports of iron ore increased by 11% in 2011 compared with 2010, or to 686.7 mt, and the country accounted for 60.1% of total world imports, the report notes.

Steel production elsewhere in the world was also growing though it had still not reached its pre-crisis production levels by the end of 2011.

In Japan, imports of iron ore fell by 4.4% to 128.4 mt. Imports by the Republic of Korea increased by 15.3% to 64.9 mt. European imports (excluding the CIS countries) rose by 16.8% in 2011, reaching 156.4 mt, or just over 13.7% of world imports.

Iron ore prices continued on an upward trend through most of 2011, the report says, as Chinese demand recovered and domestic Chinese iron ore producers were unable to keep up with this demand. Towards the end of 2011, however, prices declined in response to a slowdown in Chinese growth and the worsening economic outlook for European countries.

During the first half of 2012, prices remained more or less constant at a level which, although high from a historical point of view, just allows high-cost producers, such as those in China, to break even, the report says.

With almost all iron ore producers and steel mills having abandoned the benchmark pricing system where prices were set once a year, there is widespread confusion about prices, the annual study notes. There are three competing published price indices (Metal Bulletin, Platts and The Steel Index (TSI), and other prices are published on an informal basis.

The full effects of the new pricing mechanisms are still not clear, but the report considers it unlikely that the new models will have any major effect on price levels.

It predicts, however, that price volatility will increase compared with the previous system, as new practices for price setting vary widely, and there are a large number of published prices and indices, each with a different product specification.

The three largest iron ore-producing companies, Vale, Rio Tinto and BHP Billiton (the last two with most of their production in Australia), together controlled 34.7% of world production in 2011, the reports says. The market share of the “Big 3” decreased, albeit slightly, from 35% in 2010, and their share is still lower than the peak of 36.4% achieved in 2005.

In total seaborne trade, the share controlled by the “Big 3” fell from 60% in 2009 to 58% in 2010 and then to 57.3% in 2011. Brazil-based Vale remains the world’s largest iron ore producer at 323 mt in 2011 – again an all-time high. Despite Vale’s production increase, its market share in 2011 was lower than the peak it achieved of 18.8% in 2007.

Corporate concentration in the iron ore industry at all levels – that is, among the largest, the three largest and the ten largest companies – decreased, the report notes. All above-mentioned declines in market shares are the result of new production being started in many countries by smaller and also mid-sized producers.

As of May 2012, some 796 mt of new production capacity was expected to come on stream between 2012 and 2014. Of this total, some 270 mt falls into the category of “certain”, 220 mt is termed “probable,” and 310 mt is considered “possible,” the report notes.

Some 28% of these new projects are to be found in Oceania (Australia), 15% in Latin America, 14% in Africa, 20% in Europe, 10% in North America and 12% in Asia. On the basis of an unchanged relationship between iron ore demand and crude steel production, the report estimates that iron ore use will increase from 1.92 bt in 2011 to about 2 bt in 2012 and 2.08 bt in 2013.

The report also estimates that the world iron ore market will be characterised by tight conditions for several years to come, although prices will decline as supply gradually adapts to continuously growing demand by way of additional new capacity

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