A continuing increase in supply combined with a slump in demand made 2015 a challenging year for the iron ore market, a new UNCTAD report reveals.
The UNCTAD Iron Ore Market Report 2015, covering developments in the iron ore market in 2014 and providing an overview for 2015–2016, shows that slowing growth in worldwide steel production meant that the market for iron ore, the primary raw material of steel, entered a new phase with slower growth, lower prices and squeezed margins for mining companies.
The report notes that world crude steel production in 2015 reached an estimated 1,763 million tonnes, a decrease of 2.9 per cent, while the iron ore production reached 1,948 million tonnes, down 6 per cent on 2014. The effect on the iron ore market was that, after a long period of rapid growth, demand levelled off and prices returned to levels not seen since 2002. The price of iron ore began 2015 at $71.26 per dry metric tonne but fell 39 per cent by the end of the year.
A reorientation of China’s economic strategy brought growth in the use of steel almost to a halt, and signs of demand picking up in other parts of the world were not enough to offset China's slowdown. At the same time, the world’s largest iron ore mining companies not only expanded production in Australia, but also elsewhere, leading to a substantial supply overhang. Closures of capacity, particularly in China, were not large enough to offset these expansions and many mining projects under development were halted or shelved.
The report estimates that the world iron ore market will be characterized by potential or actual oversupply for a few more years to come. This will prevent prices from rising above a certain level and they will be determined by what is needed for additional investment to go ahead, particularly by mining giant Vale in Brazil.
Demand for steel in China is set to grow considerably more slowly than during the past decade, while demand in the rest of the world is set to pick up, in spite of the weak macroeconomic outlook in the Euro zone. New supplies will come mainly from Vale, Rio Tinto and BHP Billiton, the three largest producers, which are expected to be cautious in their approach to investment decisions.
In 2014, world iron ore production rose by just 1.9 per cent to 2,048 million tonnes. Production increased in all regions except Asia, where it declined by 21 per cent. In China, output fell by 27 per cent. Australia saw continued growth of 19 per cent in 2014, to 724 million tonnes. In Brazil, output increased by 2.1 per cent to 399 million tonnes.
World iron ore trade increased rapidly in 2014, with exports growing by 10 per cent. The growth in trade reflected changes in the geographical distribution of production, with a considerable increase in Chinese imports as a result of closures of domestic capacity. As in earlier years, the increase was almost entirely due to higher Chinese imports. China accounted for 57 per cent of the increase in world imports in 2013, and for 88 per cent in 2014. Global seaborne iron ore trade increased in 2014 by 12.4 per cent, to 1,356 million tonnes. Considerable excess tonnage remained in the world shipping industry and freight rates stayed low.
The Iron Ore Market Report 2015, produced by the UNCTAD Trust Fund on Iron Ore Information, covers market developments up to September 2015. This report is supplemented by an online database to be released on 1 March 2016, which provides updated information on the iron ore market. Both the report and the database are available and accessible through individual subscription.
