Capital costs to ‘crimp ore supplies’
Sunday, 04 March 2012 | 00:00
The global iron-ore market will remain tight until later in the decade because increased capital costs could delay some new
projects, supporting prices that have more than doubled over the past three years, an industry conference in Beijing heard yesterday.
Global iron-ore demand, chiefly driven by China, has been outpacing supply, and analysts have predicted the seaborne market will start to be oversupplied by 2014 or 2015 because of sizeable expansion by top miners Vale, Rio Tinto and BHP Billiton .
The three, which control about two thirds of the 1-billion ton global seaborne market, are planning to increase output by more than 300-million tons between them over the next three years.
But with rising costs set to delay greenfield projects, there is little risk of the global iron-ore market being oversupplied until late in the decade, Simon Wandke, vice-president and chief commercial officer of ArcelorMittal Mining, said at the conference.
"It is difficult to get a lot of projects online given the current environment," Michiel Hovers, vice-president of iron-ore marketing at BHP, said at the event.
He said that growth in supplies tended to fall short of market expectations due to delays and other issues.
BHP said there were no delays in its own expansion projects.
The 2008 financial crisis either cancelled or delayed 300-million tons of new iron-ore projects, according to an earlier estimate by Standard Chartered Bank, fuelling a sharp rise in prices to nearly $200 a ton last year.
While prices have come off since, to about $140 a ton, they are still more than double where they were in late 2008 and nearly triple the production cost of large miners, easily making iron ore their biggest money maker.
BHP said China’s iron-ore demand growth would continue, with 60% of its 1,3-billion population still living with low levels of per-capita steel consumption.
China, which buys 60% of the world’s iron ore, imported more 686-million tons last year, up 11% from 2010.