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
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.