The world iron ore market will be characterised by potential or actual oversupply for a few more years to come, which will prevent prices from rising above a certain level and they will be determined by what is needed for additional investment to go ahead, particularly by mining giant Vale in Brazil, the UN trade and development agency (UNCTAD) said in a report.
UNCTAD forecast in its Iron Ore market Report for 2015 that demand for steel in China was set to grow considerably more slowly than during the past decade, while demand in the rest of the world was set to pick up, in spite of the weak macroeconomic outlook in the Euro zone.
New supplies will come mainly from Vale, Rio Tinto and BHP Billiton, the three largest producers, which are expected to be cautious in their approach to investment decisions, it said, adding that slowing growth in worldwide steel production meant that the market for iron ore, the primary raw material of steel, has entered a new phase with slower growth, lower prices and squeezed margins for mining companies.
The report notes that world crude steel production in 2015 reached an estimated 1,763 million tonnes, a decrease of 2.9 per cent, while the iron ore production reached 1,948 million tonnes, down 6 per cent on 2014. The effect on the iron ore market was that, after a long period of rapid growth, demand levelled off and prices returned to levels not seen since 2002. The price of iron ore began 2015 at $71.26 per dry metric tonne but fell 39 per cent by the end of the year.
“A reorientation of China’s economic strategy brought growth in the use of steel almost to a halt, and signs of demand picking up in other parts of the world were not enough to offset China’s slowdown. At the same time, the world’s largest iron ore mining companies not only expanded production in Australia, but also elsewhere, leading to a substantial supply overhang. Closures of capacity, particularly in China, were not large enough to offset these expansions and many mining projects under development were halted or shelved,” the report said.
In 2014, world iron ore production rose by just 1.9 per cent to 2,048 million tonnes. Production increased in all regions except Asia, where it declined by 21 per cent. In China, output fell by 27 per cent. Australia saw continued growth of 19 per cent in 2014, to 724 million tonnes. In Brazil, output increased by 2.1 per cent to 399 million tonnes.
World iron ore trade increased rapidly in 2014, with exports growing by 10 per cent. The growth in trade reflected changes in the geographical distribution of production, with a considerable increase in Chinese imports as a result of closures of domestic capacity. As in earlier years, the increase was almost entirely due to higher Chinese imports. China accounted for 57 per cent of the increase in world imports in 2013, and for 88 per cent in 2014. Global seaborne iron ore trade increased in 2014 by 12.4 per cent, to 1,356 million tonnes. Considerable excess tonnage remained in the world shipping industry and freight rates stayed low, the report said.