Iron ore a good place to be now

Aus­tralia’s raw ma­te­ri­als pro­duc­ers face good times as China’s eco­nomic en­gines fuel in­creas­ing de­mand, writes Karen Frith

The Weekend Australian - Review - - Steel -

I NDIA’S emer­gence into the in­dus­tri­alised world will be a key driver for the con­tin­ued boom in Aus­tralian iron ore ex­ports as our ex­porters fill gaps cre­ated by In­dia’s fall­ing sales into China.

Mar­ket an­a­lysts are ex­pect­ing that as In­dia’s econ­omy con­tin­ues to grow, pro­duc­ers there will di­vert much of the 80 mil­lion tonnes of iron ore cur­rently ex­ported to China back into their do­mes­tic mar­ket.

BBY re­sources an­a­lyst John Veldhuizen says In­dia’s do­mes­tic steel con­sump­tion is fore­cast to rise from around 60 mil­lion tonnes per year to 120 mil­lion tonnes, and In­dia will need an ex­tra 65- 70 mil­lion tonnes of iron ore to meet added de­mand.

He says that, in­di­rectly, it will be In­dia and its grow­ing de­mand for steel which will gen­er­ate sig­nif­i­cant mar­ket op­por­tu­ni­ties for Aus­tralia’s iron ore.

In­dia al­ready has a $ US7- a- tonne ex­port tax on its iron ore be­cause the gov­ern­ment is try­ing to keep its iron ore at home. China will be look­ing for other sup­pli­ers,’’ said Veldhuizen.

Veldhuizen says Aus­tralian pro­duc­ers may also find sup­ply op­por­tu­ni­ties to In­dia as In­dian pro­duc­ers work to over­come in­fra­struc­ture and other pro­duc­tion con­straints.

He says it could take 5- 10 years to sort out pro­duc­tion bot­tle­necks in In­dia and bring on large- scale pro­duc­tion of its own vast iron ore re­serves.

Growth in de­mand for iron ore will be driven by mar­kets in Asia, par­tic­u­larly China,’’ said Ralph Holmes, CSIRO’s iron ore theme leader.

Ev­ery­one is try­ing to take ad­van­tage of the cur­rent boom. The ma­jor play­ers, BHP, Rio, Fortes­cue and Port­man have ma­jor ex­pan­sions planned and Aus­tralia’s iron ore out­put is ex­pected to dou­ble in the next few years,’’ he said.

China and In­dia will dom­i­nate world mar­kets in the next five years with China’s steel con­sump­tion pro­jected to grow an av­er­age of 8.5 per cent per year to 715 mil­lion tonnes, fol­lowed closely by In­dia where growth in steel con­sump­tion is ex­pected to av­er­age 8.3 per cent per year to 87 mil­lion tonnes by 2013, ac­cord­ing to fore­casts by the Aus­tralian Bureau of Agri­cul­tural and Re­source Eco­nomics ( ABARE).

The buoy­ant de­mand and high prices for iron ore world­wide have re­sulted in what is ex­pected to be a dou­bling of Aus­tralia’s iron ore pro­duc­tion, driven by China and steady growth in other Asian ex­port mar­kets.

ABARE pre­dicts Aus­tralian iron ore pro­duc­tion to rise from 263 mil­lion tonnes in 2005- 06 to 522 mil­lion tonnes in 2012- 2013.

But mar­ket com­men­ta­tors ex­pect that growth may be larger with the two ma­jor play­ers both out­lin­ing ma­jor ex­pan­sions — Rio Tinto plans to grow out­put from 200 mil­lion tonnes per an­num to 320 mil­lion tonnes per an­num by 2013 and BHP pro­poses to al­most tre­ble its ex­ist­ing 108 mil­lion tonnes per an­num to 300 mil­lion tonnes by 2015.

In 2007 world iron ore ex­ports to­talled 841 mil­lion tonnes, of which 45 per cent — 384 mil­lion tonnes — went to China.

Other ma­jor play­ers in Aus­tralia are new­comer Fortes­cue Met­als Group which loaded its first shipment of ore from its Cloud­break mine in May and ex­pects to pro­duce 55 mil­lion tonnes in its first year, and Port­man Min­ing which pro­duced al­most 9 mil­lion tonnes in 2007.

BHP Bil­li­ton, Rio Tinto, Fortes­cue and Port­man all pri­mar­ily sup­ply Asian mar­kets.

Adding pres­sure to mar­kets is de­mand from the world’s in­dus­tri­alised na­tions as they look to re­place or up­grade ag­ing in­fra­struc­ture, ac­cord­ing to Veldhuizen.

Growth in global steel con­sump­tion over the next five years is pro­jected to av­er­age around 5 per cent per year to reach 1.8 bil­lion tonnes in 2013.

A smaller but rapidly grow­ing op­por­tu­nity for Aus­tralia’s iron ore pro­duc­ers is in the Mid­dle East and South- East Asia.

This de­mand has opened up op­por­tu­ni­ties for Aus­tralian com­pa­nies in­clud­ing Grange Re­sources and Sphere In­vest­ments.

The $ US1.4 bil­lion Grange project is sched­uled to pro­duce 7 mil­lion tonnes per an­num of di­rect re­duced iron pel­lets by min­ing the South­down mag­netite de­posit near Albany, West­ern Aus­tralia, and then ship­ping the ma­te­rial to Malaysia for pel­letis­ing. The pel­lets will be sold into the Mid­dle East and South East Asian mar­kets.

Grange man­ag­ing di­rec­tor Rus­sell Clark said re­cently prices for di­rect re­duced iron were ris­ing ex­po­nen­tially and fetch­ing a con­sid­er­able pre­mium, mak­ing it an at­trac­tive mar­ket. Perth­based Sphere’s pro­posed $ 2.1 bil­lion Guelb el Aouj project is ex­pected to pro­duce 7 mil­lion tonnes per an­num of di­rect re­duced iron from its mag­netite ore re­serve in Mau­ri­ta­nia.

Both projects are based on the lower grade and more com­monly oc­cur­ring iron ore mag­netite.

Holmes says un­til re­cently, mag­netite de­posits were a largely un­tapped re­source but higher world iron ore prices have made them more eco­nom­i­cally vi­able, and a raft of hope­fuls have emerged with mag­netite projects in­clud­ing Citic Pa­cific Min­ing, Mount Gib­son Iron, Mid West Cor­po­ra­tion, Iron Road and Gin­dal­bie Met­als.

He says a num­ber of com­pa­nies are min­ing or plan­ning to mine high­er­grade hematite de­posits, first to get a cash­flow started be­fore mov­ing onto the mag­netite de­posits. Mag­netite will not be as big, but is a sig­nif­i­cant re­source and will add to in­creased vol­ume,’’ Holmes said.

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