IRON ORE
BHP Billiton has expanded its capacity by 31 Mt over the last cou- The Outlook
ple of years and plans another 28 Mt before the end of 2007 to The iron ore market remains tight.
reach a total of 152 Mt/year. Its major Third Rapid Growth Project From indications in the first months of
(RGP3), adding 20 Mt of capacity in 2007, had not yet been com- 2007 it appears that the growth in pro-
pleted before the next phase was announced. RGP4 will expand BHP duction and trade will continue at rates
Billiton’s capacity in Western Australia with an additional 26 Mt similar to those in 2002–2005. China will
annual capacity by the first half of 2010 through an investment of continue to be the engine driving the
US$1,850 million. industry. Crude steel production during
Meanwhile, the junior companies continue to present new ideas. the first three months of 2007 increased
New juniors have entered the scene with fresh ideas, or dusted off by 24%. Chinese imports in the first
old ones from the previous iron ore boom of the 1960s and early three months were up by 24%, slightly
1970s and re-packaged them. less than last year, to reach 100.1 Mt.
Progress for the Canadian juniors has been steady during the year, While the steel export taxes recently
but no new investment decisions have yet been made. There is still a introduced in China led to a slowdown in
long way to go to get these projects (all in the Canadian Arctic) the rate of steel exports – and iron ore
ready for an investment decision. imports – in June, prices for Indian spot
The government of Bolivia has privatised the Mutun iron mountain. deliveries (which can be considered a
Indian steel producer Jindal Steel and Power won the contract and is good indicator of the state of the mar-
planning to build a modern integrated steel plant in the Bolivian jun- ket) are still reported to be high. Both
gle. Whether this huge and extremely complex project will ever production capacity and demand are
materialise still remains to be seen. The political, infrastructural and expected to increase at high rates over
technical problems at Mutun are formidable. the next couple of years. The question is
A few new projects in Mongolia – either sponsored by Chinese which variable will increase fastest.
steelworks or by entrepreneurs aiming to supply iron ore to the buoy- Certain and probable capacity addi-
ant Chinese market – could make it the next country to be added to tions over the period 2007–2009
the list of iron ore producers. together correspond to about 21% of
world production in 2006. Producers are
Russian and Kazakhstan iron ore producers have
convinced that the boom will continue
been expanding their production rapidly
and that there will be room for signifi-
cant additional capacity. The many
The Chinese so-called ‘Two Ways Strategy’ is firmly in place, with possible supply scenarios need to be
expanded domestic investment into exploration and production matched against a forecast of demand.
capacity constituting one strategic leg, and imports and foreign A scenario based on the International
direct investment the other. In 2006, Chinese direct investment Iron and Steel Institute’s (IISI) fore-
abroad increased considerably. We expect more major Chinese for- casts, with the additional assumption
eign investment in the next couple of years and this will expand that world steel use will grow at the
the project list further. In addition to the numerous investments in same rate in 2009 as that forecast for
Australian projects, Chinese companies have also started to invest 2008, implies a 10% increase in China
in Africa. The Belinga project in Gabon (operated by China and 4% in the rest of the world.
National Machinery & Equipment Import & Export Co) and the bid This means that in 2009/2010 new
for the Gara Djebilet deposit in Algeria by Bao Steel are but two additions to iron ore capacity would
recent examples. The acquisition of the Sierra Grande project in match demand growth and the tight-
Argentina is another. ness in the market of recent years would
Russian and Kazakhstan iron ore producers have been expanding disappear. However, our past experi-
their production rapidly in the last couple of years. They are fast ence from using the same methodology
approaching the level of production prevailing in the 1980s (and is that it tends to over-estimate the
probably their capacity limits as well). To date, this has been possible additions to capacity and under-esti-
without any large investments in exploration to find new deposits, in mate the growth in demand. Raw
infrastructure, or in completely new mines. It seems that the situa- Materials Group forecast continued
tion has now changed, and huge investments are needed to main- high iron ore prices in 2008 and most
tain or increase production levels. probably another year of price increases
Projections for expansions presented by Indian industry leaders at the same level as in 2007
•
indicate that iron ore production must reach 290 Mt by 2020 to
meet domestic steel demand estimated at 180 Mt annually. If
Magnus Ericsson,
exports are to be continued at the current 100 Mt level, additional
Raw Materials Group, Stockholm.
production capacity of 220 Mt on top of the anticipated 170 Mt of
The background material for this article
is extracted from The Iron Ore Market
the fiscal year 2006/07 will become necessary. These are truly
2006-2008, June 2007
enormous numbers and it is hard to imagine how this plan will
www.rmg.se
come to fruition.
COMMODITIES NOW SEPTEMBER 2007 91
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