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Neither accelerated mine capacity expansions

nor measures to cool China 's overheated

steel sector have removed the tightness from

international iron ore markets. Iron ore

demand is at record levels and is set for

continued strong growth.

A new report from Sydney-based AME Mineral

Economics, Moths to the Flame, shows how

expanding steel production in China is driving iron

ore industry development. The report also shows

how ambitious steel sector development in India

and Brazil, along with steel industry revitalisation

in Russia and other countries in transition, will

further boost global demand growth.

AME forecasts that annual world iron ore consumption will increase from 1.3

billion tonnes this year to more than 1.6 billion tonnes by 2009. Attracted 'like

moths to the flame' to this white-hot market, established producers - large and

small - as well as new hopefuls are rushing to create extra capacity.

The global Big Three (CVRD, Rio Tinto, and BHP Billiton) - who between them

control more than three quarters of seaborne iron ore trade - have already put

massive expansion plans in place. A raft of other proposed projects span the

globe, from the major iron ore producing countries of Australia and Brazil, to

India, Africa, and even Sweden and North America.

Nevertheless, these will do little to ease market tightness in the short term.

Steelmakers, in some cases already suffering from raw material constraints,

have been hurrying to secure supply for next year and beyond through long-term

contracts with iron ore producers. AME, therefore, forecasts iron ore prices to

rise by over 20 percent in 2005. This follows the 18.62 percent increase in

benchmark prices for iron ore fines this year, which lifted prices to record highs.

Beyond 2005, strong demand will keep prices high, but we expect that steel price

corrections and new iron ore supply capacity will allow real-terms iron ore prices

to ease, although pellet prices may at least hold in real terms.

A major factor behind the iron ore demand surge is that the blast furnace

process is increasing its dominance of world steelmaking. Electric arc furnace

(EAF) capacity grew rapidly from the 1970s until the mid-1990s, but since then

the EAF share of world steel production has stagnated. China's steelmaking

expansion is chiefly based on blast furnace technology.

The availability of low-capital Chinese-designed blast furnace and ancillary

technology, along with fundamental shortages of electricity and scrap, are

dampening the growth of EAF steelmaking in China.

In the face of scrap supply limitations in other developing countries, particularly

those with abundant iron ore reserves such as India and Brazil, pig iron -

supplemented by direct reduced iron (DRI) - will underpin steel capacity growth.

This means that iron ore demand will grow at least as strongly as steel

production.

Seaborne iron ore trade will expand even more rapidly, since most of the

demand growth is coming from Asia, led by China, which is becoming heavily

dependent on imported quality iron ore. China's iron ore imports have risen from

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 EE-RM/STD-00-550 COMMENT 86

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8/8/2005 

Home I Daily News I Products & Services I Employment I Mining Events I Publications I About Us I MineBox EXPO I Advertise 

Sponsored by: 

Special Features 

Industry Soapbox 

Keynote Speeches 

Leaders & Legends 

Innovations 

Awards & Prizes 

Product in Focus 

Daily News 

Keyword 

Sponsored by: 

Mining Companies 

Mining Glossary 

Mineral Facts 

Mining Sites 

Have Your Say 

Latest 

Neither accelerated mine capacity expansions 

nor measures to cool China's overheated 

steel sector have removed the tightness from 

international iron ore markets. Iron ore 

demand is at record levels and is set for 

continued strong growth. 

A new report from Sydney-based AME Mineral 

Economics, Moths to the Flame, shows how 

expanding steel production in China is driving iron 

ore industry development. The report also shows 

how ambitious steel sector development in India 

and Brazil, along with steel industry revitalisation 

in Russia and other countries in transition, will 

further boost global demand growth. 

Iron Ore 

AME forecasts that annual world iron ore consumption will increase from 1.3 

billion tonnes this year to more than 1.6 billion tonnes by 2009. Attracted 'like 

moths to the flame' to this white-hot market, established producers -large and 

small- as well as new hopefuls are rushing to create extra capacity. 

The global Big Three (CVRD, Rio Tinto, and BHP Billiton) - who between them 

control more than three quarters of seaborne iron ore trade - have already put 

massive expansion plans in place. A raft of other proposed projects span the 

globe, from the major iron ore producing countries of Australia and Brazil, to 

India, Africa, and even Sweden and North America. 

Nevertheless, these will do little to ease market tightness in the short term. 

Steelmakers, in some cases already suffering from raw material constraints, 

have been hurrying to secure supply for next year and beyond through long-term 

contracts with iron ore producers. AME, therefore, forecasts iron ore prices to 

rise by over 20 percent in 2005. This follows the 18.62 percent increase in 

benchmark prices for iron ore fines this year, which lifted prices to record highs. 

Beyond 2005, strong demand will keep prices high, but we expect that steel price 

corrections and new iron ore supply capacity will allow real-terms iron ore prices 

to ease, although pellet prices may at least hold in real terms. 

A major factor behind the iron ore demand surge is that the blast furnace 

process is increasing its dominance of world steelmaking. Electric arc furnace 

(EAF) capacity grew rapidly from the 1970s until the mid-1990s, but since then 

the EAF share of world steel production has stagnated. China's steelmaking 

expansion is chiefly based on blast furnace technology. 

The availability of low-capital Chinese-designed blast furnace and ancillary 

technology, along with fundamental shortages of electricity and scrap, are 

dampening the growth of EAF steelmaking in China. 

In the face of scrap supply limitations in other developing countries, particularly 

those with abundant iron ore reserves such as India and Brazil, pig iron -

supplemented by direct reduced iron (DRI) - will underpin steel capacity growth. 

This means that iron ore demand will grow at least as strongly as steel 

production. 

Seaborne iron ore trade will expand even more rapidly, since most of the 

demand growth is coming from Asia, led by China, which is becoming heavily 

dependent on imported quality iron ore. China's iron ore imports have risen from 

http://minebox. com! story .asp ?artic1eld=4949 

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8/8/2005 
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70 million tonnes in 2000 to 148 million tonnes in 2003.

Pic of the Month

This year, China should import close to 200Mt, giving imports a share of more

than

40 percent of China's total iron ore supply. However, Chinese domestic iron ore

is generally low grade, and if this is taken into account, the imported ore share is

closer to 60 percent on a contained iron basis. AME expects that total Asian iron

ore consumption will grow from 655Mt in 2003 to more than one billion tonnes by

2010, providing the primary boost for global iron ore trade.

Meanwhile, the traditional major iron ore markets Europe and Japan will remain

relatively flat, with incremental steel industry growth expected in South Korea

and Taiwan. The trend in North America will also be flat, following the current

period of steel industry restructuring and revival. In contrast, there is much

interest in steel development projects in India and Brazil.

These countries have the potential to widen the range of possible future iron ore

demand scenarios.

Global Iron Ore Consumption

In India's case, there is a desire to match China, which became the first country

to produce over 200 million tonnes per year of crude steel in 2003. India hopes

to reach of 60 million tonnes per year by 2010, having produced 32 million tonne

last year. This steel sector growth is stimulating India's iron ore industry, which

burst onto the world scene in recent years as a major exporter. India became

China's second-largest supplier (after Australia) in the first half of 2004. AME

expects rising domestic demand to cap India's iron ore exports as the decade

unfolds.

Brazil's steel industry development is being supported and facilitated by its

mining major CVRD, as it strives to increase domestic consumption of its ore.

Brazilian steelmakers currently aim to lift crude steel production by 10 million

tonnes per year by 2008. However, there are also many potential projects being

considered there, involving some of the world's leading steel companies,

including China's Baosteel, South Korea's Posco, and European giant Arcelor.

These could form part of a 24 million tonnes per year steel centre that CVRD

recently proposed for Northern Brazil. This centre alone would increase Brazil's

steel production by about 70 percent over its current level. However, we expect

that Brazil will be able to continue to expand its iron ore export capacity and

retain its position in global trade.

Clearly, the medium-term future of iron ore is contingent on China's economic

and industrial development. Variations in the very high growth that China is

generating could cause significant divergences from the current forecast for

global iron ore demand over the next five years - a period in which hundreds of

millions of tonnes of new capacity is being brought on stream.

Additionally, hiccups in the world economy - perhaps as a result of high energy

prices - could negatively impact demand for steel and steel products, including

China's manufactured goods exports. Potentially, the tightness in the iron ore

market could quickly evaporate.

However, just as iron ore industry consolidation has given the major producers

the capability to accelerate their expansion plans, it also affords them the scope

to defer or slow the rate of ramp-up of new projects and help maintain market

stability.

- 19 Oct 2004

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8/8/2005

 EE-RM/STD-00-550 COMMENT 86

Australian Mining, Mining News, Jobs and Employment, Engineering Supplies, Minerals, Perth Australi... Page 2 of2 

Survey 

Pic of the Month 

70 million tonnes in 2000 to 148 million tonnes in 2003. 

This year, China should import close to 200Mt, giving imports a share of more 

than 

40 percent of China's total iron ore supply. However, Chinese domestic iron ore 

is generally low grade, and if this is taken into account, the imported ore share is 

closer to 60 percent on a contained iron basis. AME expects that total Asian iron 

ore consumption will grow from 655Mt in 2003 to more than one billion tonnes by 

2010, providing the primary boost for global iron ore trade. 

Meanwhile, the traditional major iron ore markets Europe and Japan will remain 

relatively flat, with incremental steel industry growth expected in South Korea 

and Taiwan. The trend in North America will also be flat, following the current 

period of steel industry restructuring and revival. In contrast, there is much 

interest in steel development projects in India and Brazil. 

These countries have the potential to widen the range of possible future iron ore 

demand scenarios. 

Global Iron Ore Consumption 

In India's case, there is a desire to match China, which became the first country 

to produce over 200 million tonnes per year of crude steel in 2003. India hopes 

to reach of 60 million tonnes per year by 2010, having produced 32 million tonne 

last year. This steel sector growth is stimulating India's iron ore industry, which 

burst onto the world scene in recent years as a major exporter. India became 

China's second-largest supplier (after Australia) in the first half of 2004. AME 

expects rising domestic demand to cap India's iron ore exports as the decade 

unfolds. 

Brazil's steel industry development is being supported and facilitated by its 

mining major CVRD, as it strives to increase domestic consumption of its ore. 

Brazilian steelmakers currently aim to lift crude steel production by 10 million 

tonnes per year by 2008. However, there are also many potential projects being 

considered there, involving some of the world's leading steel companies, 

including China's Baosteel, South Korea's Posco, and European giant Arcelor. 

These could form part of a 24 million tonnes per year steel centre that CVRD 

recently proposed for Northern Brazil. This centre alone would increase Brazil's 

steel production by about 70 percent over its current level. However, we expect 

that Brazil will be able to continue to expand its iron ore export capacity and 

retain its position in global trade. 

Clearly, the medium-term future of iron ore is contingent on China's economic 

and industrial development. Variations in the very high growth that China is 

generating could cause significant divergences from the current forecast for 

global iron ore demand over the next five years - a period in which hundreds of 

millions of tonnes of new capacity is being brought on stream. 

Additionally, hiccups in the world economy - perhaps as a result of high energy 

prices - could negatively impact demand for steel and steel products, including 

China's manufactured goods exports. Potentially, the tightness in the iron ore 

market could quickly evaporate. 

However, just as iron ore industry consolidation has given the major producers 

the capability to accelerate their expansion plans, it also affords them the scope 

to defer or slow the rate of ramp-up of new projects and help maintain market 

stability. 

- 19 Oct 2004 

About Us I Contact Us I Advertise I Terms and Conditions 

http://minebox.com/ story .asp?articield=4949 

Click here to enter 

your caption. 

© Copyright 2005 

8/8/2005