Engineering & Mining Journal

NOV 2012

Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr

Issue link: https://emj.epubxp.com/i/94438

Contents of this Issue

Navigation

Page 45 of 139

IRON ORE REVIEW pear when prices are averaged over a longer period, which means the variations appear to be the product of random move- ments and do not reflect fundamental dif- ferences in methodology. For individual actors on the market, however, the differ- ences between the indices are a source of uncertainty. Other prices are published on an infor- mal basis. China Metallurgical Newsletter publishes prices of high grade (66%) con- centrate and imported, mainly Indian, fines of slightly lower grade (62%). While all of the prices mentioned so far are quoted on a Chinese basis, either at a specific point in China or CFR Chinese ports, other newslet- ters published by financial institutions and market analysts provide FOB prices of Australian and Brazilian exports. Publica- tion of spot trading data from trades made on the China Beijing International Mining Exchange constitutes an effort to improve transparency in the market by providing details of individual trades. The CME group, SGX (Singapore Exchange), London Clearing House (LCH.Clearnet), NOS Group and ICEX (Indian Commodities Exchange) all offer cleared swaps based on TSI iron ore trans- action data. The CME also offers a Platts- based swap, in addition to its TSI swap clearing. The ICE (Intercontinental Ex- change) also offers a Platts-based swap clearing service. The swaps market has grown quickly, with liquidity clustering around TSI's pricing. Singapore Mercantile Exchange (SMX) has launched the world first global iron ore futures contract, based on the Metal Bulletin Iron Ore Index (MBIOI) which utilizes daily price data from a broad spectrum of industry participants and independent Chinese steel consultancy and data provider Shanghai Steelhome's widespread contact base of steel producers and iron ore traders across China. In spite of the rapid growth in the range of possible derivatives trades, both iron ore mining companies and steel mills have so far been relatively slow to start using the hedging facilities. Based on experiences from other markets, however, it is likely that modern price risk management instru- ments will in the future play an increasing- ly important role in the iron ore market. On May 8, 2012, China's first physical iron ore trading platform, China Beijing International Mining Exchange. The CBMX is backed by 26 Chinese steel mills and traders, including Baosteel, Wuhan Iron and Steel, China Minmetals and Sinosteel. 44 E&MJ; • NOVEMBER 2012 Table 2—Control of Production in the Global Iron Ore Industry, 2011 Controlling Entity Vale (Brazil) Rio Tinto (U.K.) BHP Billiton (Australia) ArcelorMittal (Luxembourg) State of India1 Fortescue Metals Group (Australia) Anglo American (U.K.) Cliffs Natural Resources (United States) Metalloinvest (Russia) System Capital Management (Ukraine) Total, 10 largest Total, World 1 State of India includes SAIL and NMDC. Source: Raw Materials Group Data, Iron Ore, 2012. A competing platform, GlobalOre, opened less than a month after CBMX, on May 30. It is backed by BHP, Vale and Rio Tinto and Chinese steelmakers, including Baoshan Iron and Steel. When considering the future of iron ore pricing it is important to understand that most iron ore is sold on long-term contracts and that buying iron ore is not like buying other metals. One of the most important considerations for steel mills is the consis- tency of quality of the ore. The operator of a blast furnace wants to be absolutely con- fident that the iron ore to be delivered will be of the same quality as that in the last batch. This means that the system favors long term contracts from steady suppliers. Industry Concentration Weakens Vale remained the world's largest iron ore producer at 323 million mt in 2011, an all-time high. Its market share fell, howev- er, to 16.3%. In tonnage terms, the gap between Vale and number two producer Rio Tinto increased but percentage-wise it became smaller. In spite of this growth, Vale's market share in 2011 was lower than its peak at 18.8% in 2007. Rio Tinto's production grew by 8 million mt— but only achieved a market share of 9.6%, down from 9.9% in 2010 and 10.8% in 2009. BHP Billiton increased its produc- tion by 24 million mt to reach 173 million mt or 8.8%, up from 8.2% in 2010. The Big 3—Vale, Rio Tinto and BHP Billiton (the last two with most of their pro- duction in Australia)—together controlled 34.7% of world production in 2011. Thus, the market share of the Big 3 decreased, albeit slightly, from 35% in 2010 and from a peak of 36.4% in 2005. The decline is the result of new production being started in many countries by smaller and mid- sized producers (See Table 2). An alternative way to measure the con- trol of the global iron ore industry is to mon- itor the share of global seaborne trade of the leading producing companies. Arguably, this method measures real market influ- ence more accurately, since it excludes most captive production. Measured this way, the shares of the major companies are considerably higher than if they are esti- mated on the basis of production: Vale alone controls 24.9% of the total world market for seaborne iron ore trade and the three largest companies control 57.3%. Vale's share has continuously declined dur- ing the past years, although the pace of this decline slowed in 2010 and 2011. Rio Tinto's market share also declined in 2011, while BHP Billiton's increased from 14.9% to 15.9%. The total share controlled by the Big 3 fell from 60% in 2009 to 58% in 2010 and 57.3% in 2011. Capacity Additions Face Uncertainty New iron ore mining capacity taken on- stream since May 2011, as identified at the individual project level, reached 125 million mt. As of May 2012, the project pipeline contained 796 million mt of new production capacity scheduled to come onstream between 2012 and 2014. Of this total, around 270 million mt falls into the 'Certain' category, 220 million mt as 'Probable,' and 310 million mt as 'Possible.' Globally, 28% of the projects are to be found in Oceania (Australia), 15% in Latin America, 14% in Africa, 20% in Europe, 10% in North America and 12% in Asia. www.e-mj.com Tonnage Produced (million mt) 0,323.0 0,189.0 0,173.0 0,054.9 0,052.0 0,047.8 0,044.7 0,041.1 0,038.3 0,031.3 0,995.0 1,980.0 Industry Share (Percent) 016.3 009.6 008.8 002.8 002.6 002.4 002.3 002.1 001.9 001.6 050.3 100.0

Articles in this issue

Links on this page

Archives of this issue

view archives of Engineering & Mining Journal - NOV 2012