*This is an abstract only. No full paper is available for
This paper places the current iron ore market conditions in context by examining the development of the global steel and iron ore industries over the past 40 years, and discusses the key market challenges faced by the Australian iron ore industry going forward. The evolution of iron ore demand, price and quality is traced from the inception of the Pilbara iron ore industry in the 1960s; through the 70s and 80s as Australia faced increasing competition from Brazil; to the meteoric rise in Chinese steel production in the 2000s that drove the Australian mining boom and saw iron ore fines prices increase from historical levels below US$20/DMT (dry metric tonnes) FOB (free on board) to over US$160/DMT FOB.
The global iron ore industry is now emerging from this ‘decade of transformation’, during which soaring Chinese demand drove a number of notable industry changes, including:
– the move from a balanced to a severely undersupplied market, leading to scarcity pricing and unsustainable industry margins
– massive capacity investment by all producers, including ~US$93 B in Australia, quadrupling Australia’s exports from ~200 Mt/a in 2003 to almost 800 Mt/a in 2015
– the emergence of two new major Pilbara iron ore players, Fortescue Metals Group and Roy Hill, complete with mine, rail and port infrastructure to support combined production of over 200 Mt/a, more than Australia’s total exports in 2003
– the transfer of pricing power from the Japanese and European steel mill buying cartels to China, resulting in the breakdown of the annual benchmark pricing system and acceptance of short-term index pricing
– the emergence of the Chinese spot market, enabling producers to place uncontracted volume at short notice; this resulted in a fundamental market shift from sales being demand limited, to being production limited
– the development of previously ‘unsaleable’ high P Brockman orebodies and sale of low-grade ‘waste’ by a number of junior miners into a market desperate for iron units
– a general decline in iron ore product quality with little price impact as producers scrambled to maximise volumes in a market where customers had limited choice
– technological improvements in exploration, mining and processing, enabling the rapid ramp up of new mines and the processing of more challenging ores.
This decade has now come to an end, and the Australian iron ore industry needs to build resilience in a much more competitive ‘back to the future’ world where:
– supply exceeds demand and customers once again have choice
– the supply/demand imbalance is likely to grow in the medium term as projects continue to ramp up, coupled with slowing Chinese steel demand as their economy transitions from rapid industrialisation to being consumer-driven
– high extraction rates resulting in shorter mine lives, thus requiring more rapid exploration and delineation of new orebodies to sustain production levels
– declining head grades as higher quality, easier-to-mine resources are exhausted, leading to increasing development of below water table and problematic ore types, requiring wet processing and beneficiation.
The Australian iron ore industry is well placed to rise to these challenges given the large Pilbara resource base, extensive infrastructure, proximity to market and skilled workforce, provided that it accepts that this ‘Back to the future’ world will persist, and adapts appropriately.
Brent, A D, 2017. ‘Back to the
future’ – resilience in historical context and implications for the future, in
Proceedings Iron Ore 2017, pp 5–6 (The Australasian Institute of Mining and