China is projected to remain the largest source of growth in iron ore imports over the medium term, while India is expected to become a net importer as its exports dry up due to high cost of production and output caps in key producing regions, an Australian report said.
Australia’s Resources and Energy Quarterly for March 2016 said China would maintain its pre-eminent position as a top importer because of the expected continued displacement of domestic production, which is relatively high cost and lower quality compared with seaborne iron ore).
China’s imports are projected to reach 1.0 billion tonnes in 2021, up from an estimated 968 million tonnes in 2015, despite slowing demand from the domestic steel industry. China is expected to import 98 per cent of its iron ore needs by 2021—up from 83 per cent in 2015, the report said.
This assessment assumes that most of China’s high-cost capacity will be closed, it said, adding that China has significant iron ore reserves—estimated at 7 billion tonnes after adjusting for iron content—but the low grades require extra processing to make them suitable for steelmaking, which increases the cost of production.
“If China’s iron ore production doesn’t continue to slow as projected, growth in global seaborne trade could be as little as half of what has been projected, prices would be lower and Australia’s exports would grow less than expected.”
India is projected to transition from being a net exporter of iron ore in 2014 to importing 46 million tonnes of iron ore in 2021, according to the report.
While India has significant reserves of iron ore—estimated at 8.1 billion tonnes at 64 per cent iron content—the high cost of production coupled with output caps in the key producing regions of Karnataka, Odisha and Goa mean that it is unlikely that India will be able to produce sufficient quantities of iron ore to meet demand from its growing steel industry.
While India is projected to become a significant source of growth in seaborne iron ore demand over the medium term, this may not happen if government mining restrictions are lifted or export duties are reduced.
“In addition, the Indian Government may introduce policies to ensure that it is self-sufficient in iron ore. Finally, there is some uncertainty around the projections for India’s steel production, which determines the level of domestic demand,” the report added.