Global Iron Market
Iron ore markets have tightened, with imports into China climbing another 20% in 2007. Spot prices of ore shipments into China during the summer of 2007 have surged, with the expectation that contract prices in 2008 will follow.
Although the major iron producers are investing to maintain their market share, there are opportunities for new producers to share in the market growth, thus helping end-users diversify their supply.
It is estimated that if domestic production in China in 2008 remains at 2006 levels, there will be room for an additional new supply of 72 million tons of iron into that country alone.
The global steel industry is enjoying a renaissance. Global steel production was up over 7.4% in 2007, and will likely see a year-over-year increase of 4.4% in 2008. The International Iron and Steel Institute forecasts steel use increasing by 13% in China in 2007, followed by another 10% in 2008. In total, China’s steel use will be 35% of the world total.
Overall, growth in global steel production has averaged 5.8% per annum since 2005, with India seeing a 6.4% increase and Europe at 4.7% per annum.
Prices forecast by Canaccord|Adams (C|A) for iron indicates a further increase before settling back to sustainable prices that are a little more than double the prices seen in the 1990s.
Based on an average market price of pig iron at $350 per ton, the value of world crude steel production is approximately US$460 billion per annum, almost 4 times the value of crude steel produced at the end of the 1990s.
Niche offerings are attractive to end-users seeking to diversify their supply, especially those companies focusing on the pellet market for direct reduction or blast furnace steel makers. Even more attractive for new producers, is the supply iron units in the form as pig iron (direct smelting iron).
Canaccord|Adams forecasts that up to 100 million tons of potential production can be served by new producers and grassroots projects by 2010.
Further, C|A suggests a likelihood that niche offerings will always find a market to help end-users diversify supply by focusing on the pellet market, or even better, if new producers set out to supply iron units in the form of pig iron or direct smelting iron.
The foregoing was adapted from Canaccord|Adams“Iron Ore Market Review & Project Developers”, October 16, 2007
