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IRON ORE Iron Ore Market Review: Creeping Toward Equilibrium The authors predict that the world iron ore market will be characterized by tight conditions in the short term, but prices will decline as new production gradually comes on stream By Magnus Ericsson, Anton Löf and Olle Östensson With the world economy and industrial production slowing down in 2012 due to austerity policies in Europe and the United States, world crude steel production, according to the Organization for Economic Cooperation and Development (OECD), increased by only 1% from 1,527 million metric tons (mt) in 2011 to 1,542 million mt in 2012. China continued to account for most of the growth in production, increasing by 3.1% from 695 million mt to 717 million mt, although growth slowed significantly there as well. In Europe, production fell by 2.7% due to shrinking industrial output. Steel production in Africa decreased by 2.9%, continuing its decline from 2011, mainly due to power shortages in South Africa. In the Americas, production grew by 0.9%, but was still below the level reached in 2008, before the financial crisis. Many major producers experienced declines in crude steel production, including Brazil (-1.5%), Germany (-3.7%), Italy (-5.2%), Japan (-0.3%) and Ukraine (-6.9%). Countries that experienced increases included India (4.3%), Republic of Korea (1.2%), Russia (2.5%) and the United States (2.5%). The recovery in crude steel production since the financial crisis has been almost entirely due to China, where production started increasing again in November 2008 and previous peaks in monthly production were matched in April 2009. In April 2013, the rest of the world was still far from reaching precrisis production rates. Growth rates in most of the OECD area are likely to be very modest over the next few years. The slowdown in global economic growth in 2012 meant that steel In October, Rio Tinto celebrated completion of the first phase of the major expansion of its integrated iron ore operations in the Pilbara. It is evaluating a number of options for further mine capacity growth there. 30 E&MJ; • NOVEMBER 2013 demand also suffered, increasing by only 2.9%. Steel demand in China increased modestly, by 3.5%, compared with the impressive increases in previous years. Steel demand growth recovered in the autumn of last year, however, and was relatively strong in the first months of 2013. Steel use in the rest of the world outside China grew by 2.4% in 2012. Iron Ore Production The world iron ore market stopped growing in 2012 and production declined marginally (by 1.8%) to 1,863 million mt. With the exception of the financial crisis in 2009, this was the first year of decline since 2001. Output grew in Australia by 8.9%, while in most other countries output decreased or remained static. Among the major producers, Brazilian, Chinese and Indian production fell by 7.6%, 12.7% and 8.7%, respectively. Russian, Ukrainian and South African production increased marginally. Australia has taken the lead globally and has become the dominating force in iron ore production. Australian production is 150 million mt larger than that of Brazil. Brazilian expansion of production also is slower, and Australia will continue as the top producer for several years. In India, which has large and good quality resources of iron ore, production will be held back by difficulties in achieving compliance with regulations, as well as controversies over land use and the sharing of production between domestic use and exports. Over time, as the Indian steel industry grows, most of its iron ore will be used domestically. The slow decline of Chinese production, down by 41 million mt, as forecasted previously, continues. Estimates of Chinese production were made based on a careful analysis of pig iron production in China and iron ore import statistics. These figwww.e-mj.com