Analysis: Chinas iron ore supply situation through 2010
Chinas
pig iron output increased sharply in recent years, reaching 252 million tons in 2004, which was 50 million tons higher than 2003 and 120 million tons higher than 2000. The rapid development of the steel industry has played a large part in the rise of domestic demand for
iron ore.
Limited domestic supplies of
iron ore means that
China has had to rely more and more on imported
iron ore to feed its blast furnaces.
Chinas sharply increasing demand for imported ores has in turn caused the global supply of
iron ore to tighten. Thus, the
iron ore supply situation at home and abroad will significantly influence
Chinas steel market in the future. The following briefly analyzes
Chinas future
iron ore supply situation.
First, a look at the imported
iron ore supply situation. In 2004,
China imported 208 million tons of
iron ore, an increase of 60 million tons year-on-year. Among all imported ores, 85% were from
Australia,
Brazil,
India and South
Africa, whereas this figure was 93% in 2003. It is obvious that high prices have encouraged other countries to enhance their ore export to
China.
In terms of import quantity, during 2004
Chinas imports of
iron ore from
Australia increased 20 million tons, while imports from
India,
Brazil and from other countries increased 18 million tons, 7 million tons and 15 million tons respectively.
Surging exports from
India and other countries satisfied
Chinas
iron ore demand in 2004 as Australian and Brazilian mine owners were busy expanding
production capacity.
In terms of global supply,
iron ore is abundant in the world, with around 800 billion tons of reserves. From that, more than 230 billion tons of metal content could be extracted. The current
iron ore supply tightness, which is predicted to last only for the short term, is simply a temporary function of insufficient
production capacity. Thus
iron ore supply will become stable, driven by long-term interests of suppliers and purchasers, as
production capacity gradually increases.
As to mine expansions, global
iron ore production capacity will possibly increase 50% in order to meet market demand in future years. Three global
iron ore giants are currently investing to expand their
production capacity. For
Rio Tinto,
production capacity will grow 50 million tons by 2006, with an additional 40 million tons by 2010. For
BHP,
production capacity will increase 35-40 million tons by 2007, with an additional 30 million tons by 2010. For CVRD,
production capacity will raise 70 million tons by 2010. Also, Fortescue Metal Group Limited (FMG) plans to develop a new 50 million ton capacity mine this year.
Furthermore, some new projects are also underway, such as Guinean Nimbas
iron ore project of 45 million tons, South African Sishens
iron ore expansion project, the Casa mine
construction project by Brazilian CSN Company and Mauritanian Guelbs
iron ore project of 18 million tons.
It is projected that
iron ore production capacity during 2005-2010 will increase more than 300 million tons throughout the world. This means that the global
iron ore trade will reach 900 million tons by 2010. In 2004, the global
iron ore trade came to 585 million tons, 65 million tons higher year-on-year. Countries depending on imports, such as EU members,
Japan and the US, showed
iron ore import growth of 5 million tons, while
Chinas
iron ore import increased 90%.
As for the scheduling status of recent expansions by major global mining enterprises, the seaborne
iron ore trade quantity will increase 60 million tons in 2005, 80 million tons in 2006 and 90 million tons in 2007 according to various estimates. In 2005,
Chinas
pig iron output will continue to expand rapidly, and the bulk of the additional 60 million tons produced globally will be exported to
China.
The
pig iron output of major global
iron ore importers is forecasted to increase 3.5 million tons or so in 2005, i.e. the ore import will rise 6 million tons in order to meet the demand. For
China,
iron ore import will rise 54 million tons, with total imports reaching 260 million tons in 2005 and 320 million tons in 2006.
However, even though the global ore market will affect the
construction scale of iron mines,
India is also currently going through a period of high growth, which means
Indias
iron ore self
consumption will increase in the future as the country looks to feed its own new steel mills. Such a scenario could lead to dwindling export space.
Now to examine
Chinas domestic
iron ore supply situation. In recent years, domestic ore price increases have spurred
iron ore exploration in
China. According to national statistics, domestic raw ore output in 2004 was 310 million tons, growing 22% year-on-year.
Chinas
iron ore reserves total 11.5 billion tons with low Fe contents. Provided that the annual
pig iron output made of Chinese-origin ores is 130 million tons,
Chinas
iron ore reserves will be depleted in 30 years. The stagnant
iron ore market situation of previous years limited
production capacity expansion. Yet during 2003-2004,
Chinas ore output increased greatly with former capacity.
Along with surging
iron ore demand in
China, Chinese mining enterprises have been busy in expanding their
production capacity. According to preliminary statistics, around 40 projects with capacities greater than 1 million tons are under
construction or in preparation now. The total raw ore productivity of these projects is projected to exceed 100 million tons. These projects will be put into
production over the next three years.
Thus, it is projected that
Chinas finished ore supply will increase 20 million tons or so in 2005, and another 20 million tons in 2006. However, private
iron ore exploration has reached more than half of national total output, and these private iron mines
production situation will be largely determined by
iron ore price level. Thus,
Chinas domestic
iron ore production growth rate may possibly drop after 2006.
Chinas domestic finished ore output will come to 210 million tons in 2005, and the max import volume may reach 260 million tons, resulting in a total of 470 million tons of ore supply. Such supply would meet market demands of 310 million tons
pig iron output. Moreover,
Chinas total
iron ore supply quantity in 2006 may reach more than 550 million tons, meaning it could meet 360 million tons of
pig iron production.
In terms of
Chinas
pig iron production capacity,
Chinas blast furnace productivity volume totaled 330 million tons in 2004. Some more furnaces will become operational in 2005, adding 58 million tons of capacity. Thus,
Chinas
iron ore supply situation will still be lower than
pig iron productivity level.
In 2005, even though major global
iron ore suppliers have carried out
production expansion, the
iron ore supply increase will be quite limited as many of the projects may not be completed in 2005. Under
Chinas booming demand and the depreciating US dollar, foreign
iron ore suppliers naturally required an
iron ore price increase.
Iron ore price agreements made by Nippon Steel and Posco, among others, mean that
Chinas imported iron ores price will increase 200 Yuan. At the same time, the international
iron ore price increase may prompt
China domestic mining enterprises to hike the price on their products. Meanwhile,
Chinas domestic blast furnace productivity will reach 370 million tons in 2005 and actual
pig iron output may reach 320 million tons, meaning that the country will exceed
iron ore supply capacity for the
pig iron productivity increase. Thus, Chinese steelmakers may scramble for
iron ore in 2005.
In addition, the current tight sea and railway transportation will not change over night, which means the costs will be passed on to ore market. Furthermore, the global oil price will fluctuate in high levels, promoting imported ore cost. However, long products manufacturers may demand less ores if the
iron ore price exceeds their affordability levels, which may help constrain
iron ore price increases.
Therefore, it is projected that
Chinas domestic
iron ore market will suffer a comparatively tight situation in 2005, similar to the situation in 2004. Meanwhile, the price of imported
iron ore will rise to a certain degree, affected by foreign suppliers price increases and the tight transportation situation. In turn, domestic
iron ore prices will be influenced by the imported ore price level on one the hand, and the steel market situation on the other. Thus, it is estimated that
Chinas domestic
iron ore price will fluctuate at high levels along with the supply and demand situation and steel market trend.
In terms of long-term development for the ore market,
Chinas
iron ore supply growth rate will slow down to certain extent during 2006-2007. However, things will improve along with foreign large-scale
production capacity exertion and enlarged transportation capability.
Based on the current market trend,
Chinas steel demand will weaken after 2006, as will
iron ore demand. At the same time, global
iron ore supply will continue to surge, bettering
Chinas ore supply situation and affecting domestic ore supply.
All in all,
Chinas
iron ore import growth will slow down in 2006, but continue to grow nonetheless through 2010. In order to meet demand, both domestic and foreign ports are undertaking port enhancement projects. Among the total, the 300 thousand ton
iron ore dock in Dalian port and 200 thousand ton
iron ore dock in Tianjin port have been put into operation. Meanwhile, plans are in the works for 200 thousand ton iron docks at the Zhanjiang port, Rizhao port and Cafeidian port. All these will help to enlarge
Chinas imported
iron ore handling capacity.
Moreover, as
China will have mounting dependence on imported
iron ore in the future,
Chinas steel industry will experience corresponding change in line with the raw material supply location. Along with operation of newly built docks, steel productivity along costal areas will expand.
By now, many domestic steel enterprises have actively explored the international market.
Baosteel, Wuhan Steel, Maanshan Steel,
Shagang, Tangshan Steel, Nanjing Steel, Shougang, Kunming Steel, Anshan Steel as well as Tonghua Steel have all invested in foreign mining companies to explore
iron ore in
Australia, Vietnam,
Peru,
Mongolia,
Russia and South
Korea. Such a trend is expected to continue.