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The global iron ore business is entering a new era of
uncertainty. After a two-decade boom, mining and seaborne trade of
the mineral essential to the making of steel seem poised for a time
of price volatility and long-term instability.
China, the world's dominant customer, which has driven the
market this century, has cut steel exports as trade frictions and
tariffs threaten industrial growth in the global economy-- and a
recent environmental disaster in Brazil has made a key supply
source uncertain, triggering tightness in the market and a rebound
in prices.
Global iron ore markets are particularly susceptible to
volatility because they're controlled by few players. Two countries
- Australia and Brazil - account for a massive 70% of total
seaborne iron ore exports - and one country on its own - China --
imports 72% of the total.
In Brazil and Australia, companies like BHP Billiton, Rio Tinto
and Anglo American have invested heavily this century in a new
generation of supermines, which pump out millions of tons of iron
ore a year, much of which gets shipped to China.
Top iron ore exporters, first 11 months,
2018
Australia $42.7 billion (-3.1%)
Brazil $18.4 billion (+4%)
South Africa $3.8 billion (-13%)
Canada $3.7 billion (+14%)
Ukraine $2.6 billion (+10%)
Sweden $2.2 billion (+4%)
Netherlands $1.7 billion (-6%)
Russia $1.4 billion (-6%)
India $1.2 billion (-24%)
Chile $933.6 million (+0.5%)
Brazil has increased exports by 46% in the last 10 years,
ramping up shipments to 389.9 million tons last year.
But last month, on January 25th, at Vale's Corrego do Feijao
mine in Minas Gerais, a dam collapsed, sending debris into the
adjacent valley, destroying the mining processing plant and
crushing residential neighborhoods. Hundreds of workers are dead or
remain missing. Vale has been ordered to shut other mines pending
an investigation.
The crisis has helped push up iron ore prices this year, as
steel mills scramble for raw materials ahead of spring and summer
construction and after the Chinese New Year.
The disaster is a massive crisis for Brazil's top miner Vale,
which employs around 75,000 people and is expected to have sales of
around $37 billion this year. Vale had expected to produce around
400 million tons, and will now lose around 70 million tons of that,
disrupting global supplies.
Brazil iron ore exports, 2009-2018
2009: 265.9 million tons
2010: 310.7 million tons
2011: 330.8 million tons
2012: 326.5 million tons
2013: 329.6 million tons
2014: 344.4 million tons
2015: 365.1 million tons
2016: 374 million tons
2017: 383.5 million tons
2018: 389.9 million tons
Because of China's new environmental rules, its mines won't
boost supply to make up for the new shortfall. And the market's
third-biggest supplier South Africa won't be able to do much.
Although its mines produce high-grade iron ore, it doesn't have the
capacity. Instead, it's Australia that is expected to pick up the
shortfall in the market.
Australia iron ore exports, 2009-2018
2009: 362.9 million tons
2010: 401.9 million tons
2011: 437.8 million tons
2012: 491.6 million tons
2013: 579 million tons
2014: 717 million tons
2015: 766.8 million tons
2016: 808 million tons
2017: 827.1 million tons
2018: 835.9 million tons
The country's western Pilbara region is the most important iron
ore production area in the world, a sprawling desert moonscape
where rock is drill-blasted and placed on rail carriers headed for
northern ports and ships going to China, still the world's dominant
market.
Top iron ore importers, first 11 months,
2018
China $68.3 billion (-3%)
Japan $8.6 billion (-2%)
South Korea $4.9 billion (-2%)
Germany $3.3 billion (-2%)
Netherlands $2 billion (-9.1%)
Taiwan $1.8 billion (-1.6%)
France $1.2 billion (-3%)
Malaysia $942 million (+44%)
India $909.3 million (+116%)
Turkey $890.7 million (-2.2%)
As China has built itself from an impoverished communist
backwater to a superpower able to rival the US in only a few
decades, it acquired a voracious appetite for steel, and a stunning
capacity to make it.
Global steel consumption has increased to around 1.6 billion
tons from 850 million tons in 2000. Half of that is made in
China.
Chinese iron ore imports
1995: 41.2 million tons
2000: 92.4 million tons
2005: 275.1 million tons
2010: 619.1 million tons
2015: 953.4 million tons
2018: 1.2 billion tons*
*projected
Under pressure from trading partners, China has cut its steel
exports to 59.2 million tons in 2018 from 100.4 million tons in
2015.
China and its appetite for steel to make cars, buildings, roads
and bridges, has made iron ore miners rich, but it's also created a
dependency. When the Chinese economy sneezes, the mining business
catches a cold.
Iron ore is still one of the world's most profitable mining and
shipping businesses, but long-term prosperity will depend on being
able to weather the new storms.
Posted 19 February 2019 by John Miller, Guest Blogger
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.
