The UNCTAD Iron Ore Trust Fund has published its annual iron ore market review, The Iron Ore Market 2007-2009, in cooperation with the Raw Materials Group, a Swedish consultancy firm.
The iron ore boom continues unabated and even accelerated in early 2008. Price negotiations have been exceptionally drawn out and were not fully concluded in early July. The price increases agreed to so far vary from 65-97% and are the highest ever concluded under the system with annually negotiated benchmark prices, which has been used since the 1960s. A premium for Australian producers to reflect the difference in freight costs between Australia and Brazil for deliveries to China is the contentious issue. The Chinese lost the lead in the iron ore price negotiations they had taken in the 2007 round when they were the first buyers to conclude a contract, thus establishing the benchmark for the entire industry. This year, Nippon Steel and POSCO signed the first agreement for 2008 with Vale.
World use of finished steel products increased by 6.6 % in 2007 to 1,202 million tons (Mt), while world crude steel production increased by 7.5 % to 1,251 Mt. Growth has continued at a high rate into 2008.
World production of iron ore grew by 9% in 2007 (11% 2006) to reach 1.6 billion tons. Output increased mainly in the four major producing countries Brazil, China, Australia, and India. Mine production in China grew unexpectedly fast, by 20%. China strengthened its position as the world´s second largest producer, just behind Brazil and well ahead of Australia.
World iron ore exports increased by 8.1% in 2007 (6.1% in 2006). Brazil is now the leading exporter at 269 Mt, overtaking Australia. Indian exports grew for the seventh consecutive year, and, at 94 Mt, the country is the third most important exporter, ahead of South Africa, Canada, and Russia. China continues to be the most important importing country, accounting for 41 %, (43% 2006) or 383 Mt of world iron ore imports in 2007.
Freight rates increased even faster in 2007 than they did in 2006, and reached record levels at the end of 2007. Those increases continued in 2008.
Nearly 130 Mt of new iron ore mining capacity was taken into operation in 2007. This is a considerably higher figure than in 2006. The focus for new developments is changing to Brazil and West Africa from Australia. In total, over 400 Mt of new capacity is planned to come on stream in the three-year period 2008-2010. This figure should be compared to future demand based on International Iron and Steel Institute (IISI) projections of 340 Mt. The outcome depends crucially on the ability of Chinese domestic producers to expand production. If freight rates remain high, these producers will continue to hold a competitive advantage over new producers, possibly leading to postponements of new projects.
The iron ore market will most likely continue to be tight until 2010 or possibly 2011. There are several indications that prices will continue to increase in 2009, but the trend for the following years is less certain. At the same time, it appears likely that trade in iron ore will become more diverse and will involve a more varied range of pricing methods, with shorter term arrangements and flexible pricing systems playing a larger role. The benchmark negotiating system for iron ore prices seems to be doomed, since major producers have succeeded in introducing modifications.
