- United Nations Conference on Trade and Development Iron Ore trust fund - Production & industry concentration with specific reference to China - Future pricing system, transparency issues -Impact of demand changes: production cutbacks, upstarts and expansions, project pipe-line, changing ownership structure - A special note on the Chinese iron ore industry - Medium term outlook - Summary and conclusion Author: Per Storm, Managing Director, RAW MATERIALS GROUP, Sweden

1. 6th Annual Eurocoke Summit workshop &
conference, 27th - 29th April 2010;
Lisbon, Portugal
Outlook for
iron ore –
Tungsten drawing: Kaianders Sempler.
The future is
back!
Per Storm,
managing Director

2. Outline
• UNCTAD Iron Ore Trust Fund
• Global background
• Demand
• Supply
• Short term outlook.
• Medium/long term outlook.

3. Raw Materials Group
• Raw Materials Data, Metals/Coal/Iron Ore.
• Strategy development:
– Mining companies, equipment & service
providers.
• Mineral policy, investment promotion:
– Governments, International organisations.
• Pre-feasibility/Feasibility studies:
– Financial institutions, companies.

4. UNCTAD Iron Ore Trust Fund
• 1987, since 2002 with Raw Materials Group
of Sweden.
• Two annual publications
– Iron Ore Market Review in May
– Iron Ore Statistics in September
• Financed by sales and contributions from
Australia, Brazil, Canada, Sweden and US.
• Contact ironore@unctad.org for information.

5. Global
background
Vanadium drawing: Kaianders Sempler.

6. Global iron ore production 2009
Mt
2000 1690 Mt - 2.2 %
China 370 Mt Oceania
1500 no growth
Asia
1000 Africa
Americas
500
Europe
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sources: RMG, UNCTAD.

7. Global iron ore exports 2009
Mt
1000 911 Mt + 2.4 %
800 Australia 360 Mt Oceania
Asia
600
Africa
400
Americas
200 Europe
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sources: RMG, UNCTAD.

8. Chinese question mark 1?
• Reported prod. 824 Mt = 245 Mt Fe (30%).
• Pig iron content 440 Mt Fe (94%).
• Imports 280 Mt Fe (63 %).
• Domestic demand 160 Mt -> excess of 85 Mt.
• Possible explanations:
– Stock build up.
– Losses/incorrect reporting.
– Average ore grade falling.

9. Chinese question mark 2?
• Possible explanations:
– Stock build up: 25 Mt
– Losses/incorrect reporting: 42 Mt
(concentration/transport/steel)
Sum 67 Mt
• Adjusted domestic need 160+67=227 Mt
– Average ore grade fell to 27.5 % = 824 Mt
• Answer combination of all three.

10. How competitive are Chinese
iron ore mines 1 ?
Mt
• Domestic Chinese
production hard hit, while
imports stayed constant.
• Demand picked up, both
benefitted.
Source: TEX Report

11. How competitive are Chinese
iron ore mines 2 ?
• Falling prices made
imports more competitive
their share rose.
• Import dependence
increases.
Source: TEX Report

12. Global background
• The Chinese long march will start –
shake out among producers.
• Australia taken the lead among producers
and exporters.
• Corporate concentration excessively high –
particularly if the BHP Billiton and Rio Tinto
JV is accepted.

13. Demand
Lithium drawing: Kaianders Sempler.

14. Short term assumptions 1
Crude steel: World monthly production, Mt
• Steel recovering, 2009
10% lower than 2008.
• Europe and North
America 25-30 % below
last year.
• Stimulus packages are
having an impact, but
more important China
goes against the trend.
Source. World Steel Association

15. Short term assumptions 2
China: a reversal of trends
Mt 70.0
60.0 • Chinese crude steel
50.0 production 568 Mt 2009.
• Some Chinese mines can
40.0
Iron ore not cover their costs.
30.0 imports
• Chinese iron ore imports
Crude steel
20.0 production in 2009 629 Mt.
10.0
0.0 Sources: World Steel Association, TEX Report
July
July
Jan-08
Jan-09
April
April
October
October

16. Demand growth to 2020
Mt
3000.0
• Demand growth is
2500.0
expected to average
2000.0 3.3 % per year from
2008 to 2020 (6 %
1500.0
1998 to 2008).
1000.0 • Around 2014, world
500.0
iron ore demand will
pass the 2 billion ton.
0.0
Sources: UNCTAD; RMG.
2020
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018

17. Demand
• Slow down in growth even if 2007 levels
soon will be reached.
• Is the super-cycle still running?
• Further focus on Asia.
• Slow recovery in Europe.

18. Supply
Thorium drawing: Kaianders Sempler.

19. Global iron ore production
Source: Raw Materials Data Iron ore, 2009.

20. Corporate concentration
% 35
30
25
20
15
10
5 Seaborne trade 2008
0 2008
Vale 1990
Rio Tinto
BHP
7 next
Billiton Source: Raw Materials Data, 2009.
largest

21. Project pipeline
Source: Raw Materials Data Iron ore, 2010.

22. Iron ore projects 2009-2011
Mt 250
200
150
Possible
100 Probable
Certain
50
0
A
N
So
A
Eu
O
fri
or
si
ce
ut
ro
a
ca
th
an
h
pe
A
A
ia
m
m
er
er
ic
ic
Source: Raw Materials Data, 2009.
a
a

23. Project pipeline
• Few cancelled projects, but slow down.
• West Africa, Siberia, Canadian arctic problems.
• Brazil, South Africa, West Europe advantage.
• Large producers: capability to wait for market.
• Surprisingly quick restart.
• But supply response is slow.
• Political demands hamper developments.
• Project pipeline surplus 2010/2011 300-400 Mt.

24. Short term outlook
• In 2010 the world as a whole will have
returned to the economic activity in 2007 –
but huge differences between countries.
• Global iron ore demand is expected to
increase by about 10 %.
• Spot prices are likely to strengthen,
benchmark prices at
2009 levels plus 10 – 15 %.

25. China long term trends
Mt 700
600
500
400
Iron ore imports
300
Crude steel production
200
100
Sources: UNCTAD, TEX Report
0
2002 2003 2004 2005 2006 2007 2008 2009

26. Chinese import dependency
2007 2008 2009
Imports (Mt) 383 444 628
Production (Mt) 365 366 374
normalised
Self-sufficiency (%) 49 45 37
Source: UNCTAD, China Metallurgical Newsletter.

27. Long term assumptions
• Resumption of global growth, driven by Asia.
• Some reduction in Chinese steel intensity.
• Recovery of growth in international trade,
rising freight rates over next 5-10 years.
• Few new high quality deposits in China.
• Continued dominance by “Big 3”.
• Few new deposits outside Australia and Brazil.

28. Freight rates1999 - 2009
USD/ton
Brazil-Europe
Australia-China
Sources: Drewry, SSY.

29. Prices and freight rate
differentials
USD/ton
Sources: UNCTAD, TEX Report, Metal Bulletin

30. Prices/freight rates interact
• Benchmark pricing made the freight rate the
most important dynamic factor
• High freight rates have protected domestic
Chinese iron ore producers.
• Lower freight rates, combined with lower
demand, expose the Chinese producers to
competition.

31. Medium/long term outlook 1
• The Great Chinese Shakeout
– Low grade Chinese mines can not
compete with imports and shut down.
– Import dependence increases.
– Strong stimulus for iron ore producers
in the rest of the world.
– Seaborne trade grows fast, offering
opportunities for new suppliers.

32. Medium/long term outlook 2
• Business as usual
– Domestic Chinese iron ore mines adapt
and stay competitive.
– Or, high freight rates provide protection.
– Import dependency in China constant.
– Room for growth in the rest of the world,
but new suppliers will find it difficult.

33. Conclusions
• Chinese miners will act as a buffer,
absorbing variations in demand.
• Rest of the world relatively stable conditions.
• Prices determined by interaction of demand
conditions and freight rates.
• Long term future bright.

34. THANK YOU !
Raw Materials Group
PO Box 3127
SE-169 03 Solna, Sweden
Tel: +46-8-744 00 65
Per.storm@rmg.se
UNCTAD
ironore@unctad.org
Manganese drawing: Kaianders Sempler.
www.rmg.se