The UNCTAD (United Nations Conference on Trade and Development) Iron Ore Trust Fund has released its annual iron ore market review, covering analysis of the market in 2007-2009.
The report emphasizes the unique nature of the prospective iron ore market development in 2009, identifying a number of particularities in the 2008 iron ore talks. The iron ore boom continued and even accelerated in early 2008, while the price negotiations were still not concluded by early July. The prices finally agreed on were the highest ever concluded under the annual negotiation system since its establishment in the 1960s.
In addition, the new practice was introduced during the 2008 price negotiations - i.e. a premium for Australian producers to reflect the difference in freight costs between Australia and Brazil for deliveries to China. Furthermore, in the 2008 price negotiations China lost its lead position as regards conclusion of contracts. Whereas in 2007 the Chinese steel mills were the first to conclude iron ore contracts, thus establishing the benchmark for the entire industry, in 2008 a sign of hesitation was seen in the price negotiations on the part of the Chinese, thereby allowing other Asian steel producers such as Nippon Steel and POSCO to take the initiative instead.
In 2007 world steel consumption, finished steel production and iron ore production grew at almost the same rates. According to the report, global use of finished steel products increased by 6.6 percent, world crude steel production went up by 7.5 percent and world iron ore production grew by nine percent year on year to 1.202 million mt, 1.251 million mt and 1.6 billion mt respectively.
Although there was an increase of 8.1 percent in 2007 in global iron ore exports, the year saw a change in the positions of the leading exporters, as Brazil with 269 million mt overtook Australia to take first place. India, whose exports have been growing for the past 17 years, ranked third in the 2007 with 94 million metric tons, ahead of South Africa, Canada and Russia. In addition, China strengthened its position as the world's second largest producer, just behind Brazil and well ahead of Australia.
Meanwhile, the import structure did not change much in 2007, with China remaining the most important importing country, accounting for 41 percent or 383 million mt of world iron ore imports in the year in question.
In 2007, freight rates rose faster even than in 2006, reaching record levels at the end of 2007. This tendency is to continue in 2008.
The year 2007 was marked by another record - i.e. for the volume of new iron ore mines coming on stream. Last year nearly 130 million mt of new iron ore mining capacity started production operations. Meanwhile, the focus of new developments has also been changed from Australia to Brazil and West Africa. In total, over 400 million mt of new capacity is planned to come on steam in the three-year period 2008-2011. Meanwhile the IISI's projection does not exceed the figure of 340 million mt for the same period. Much will depend on the ability of Chinese producers to expand production. If freight rates continue to rise, well-established iron ore producers will continue to hold a comparative advantage over new producers, possibly resulting in the postponement of the implementation of new projects.
As for the future development of the market, the report forecasts the market to be tight until 2010 or even 2011, with prices continuing to increase in 2009. Meanwhile, trade in iron ore shows some indications of becoming more diverse, involving a more varied range of pricing methods, with short-term arrangements and flexible pricing systems playing a larger role. The benchmark negotiations for iron ore prices seem to be doomed, since the majority of producers have succeeded in introducing modifications, the report concludes.