RISING DEMAND, FALLING PRICES FOR IRON ORES

9:44 AM Oct 19, 1995

RISING DEMAND, FALLING PRICES FOR IRON ORES
Geneva 19 Oct (Chakravarthi Raghavan) -- All-time record levels in trade, tightening supply position and fall in prices for third consecutive year is the paradoxical situation in the world's iron ore market in 1994, according to the UN Conference on Trade and Development.

In a report for the Fourth session next week of the Intergovernmental Group of Experts (IGE) on Iron Ore, the UNCTAD secretariat that with steel output rising sharply, and metallic supplies tight, there has been a further increase in global demand for iron ore, and iron ore exports reached a new peak in first six months of 1995.

The outlook for 1996 remains bright with further rise in global demand and prices for steel and iron ore products, the report adds.

And while the iron ore prices have started recovering in 1995, since prices are quoted in US dollars, the low prices and weak US dollar continues to erode part of the gains of exporters, especially in countries where the national currencies are over-valued.

"In the present context," the report adds, "pricing iron ore in US dollars seems no longer pertinent, since it distorts the market and brings more instability to the iron ore industry."

The rising volume of iron ore exports, the report brings out, has also tightened the market for bulk shipping and has increased both bulk and within it iron ore freight rates, reaching records unseen for over 10 years.

But a problem preoccupying importers and exporters is the growing number of accidents with iron ore cargoes. In 1994, a total of 14 vessels sank, 10 of them transporting iron ore and nine of more than 20 years age.

"The issue of technical standards and age and condition of the world fleet, requires a concerted and globally acceptable action for monitoring the maintenance and safety of bulk vessels. Some iron ore producers, consumers, traders and ship-owners have already attempted to find viable solutions... but a joint effort is needed to find long-term solutions."

According to the report, in 1994 the world iron ore trade reached an all-time record level. Higher levels of industrial output and the strong upsurge in global steel demand boosted the world iron ore market. World iron ore trade rose by nearly 7.5% by volume -- reaching 430 million tonnes (Mt) in 1994. In value terms, the total iron ore trade amounted to $8 billion.

Iron ore was the most traded non-energy mineral commodity in value and volume terms, regaining its top position in the world dry bulk commodity market and was responsible for one of the sharpest increases in freight rates over the last decade.

Australia and Brazil dominate the world iron ore trade scene, their combined market share now close to 60% of the world total.

Despite an extremely tight supply situation, the report say, paradoxically iron ore prices fell sharply by 9.5% in 1994, a third consecutive year of downward trend. But the report offers no explanation for this.

Together with manganese, iron ore is one of the few commodities not benefiting from the improvement in commodity prices last year.

The upswing in iron ore demand has come now from the industrialized countries, particularly the European Union and the USA. With the OECD countries emerging from recession in 1994, and with strength of the recovery strongly influencing steel consumption, the peak trade demand and growth shows that steel remains a key sector in the world economy, even in the most developed countries, UNCTAD comments. The indirect exports of steel in products such as automobiles and machinery remains a leading role in their trade balance.

The sustained expansion of the Chinese economy, even with some slowing of growth in 1994, has continued to provide a positive impact on level of steel output, and thus generating a significant increase in world demand for iron ore. The ever-growing level of steel demand in the dynamic Asian economies as well as in Latin America and the Middle East has also greatly contributed to the substantial growth of iron ore trade in 1994.

But iron ore mining and consumption has continued to fall drastically in the Commonwealth of Independent States (CIS), the former Soviet Union republics.

With prices for prime grade ferrous scrap remaining high in 1994, the demand for alternative primary iron ore products continued to push up ore consumption. As a result, shortages of high quality pellets and lumps occurred and supplies were sold out.

Not only were large volumes of these products sold to Direct Reduced Iron (DRI) plants, but even integrated steel producers took advantage of the low price of these direct-charge ores.

The market has also become tight for fines where new supplies have come on stream.

The world iron ore market has remained buoyant in 1995. Demands for metals has continued to rise, tightening ore supplies. Lower inflation and interest rates are stimulating capital spending and activating further growth in steel consuming sectors. During the first half of 1995, world steel output has risen sharply, causing a sizeable increase in iron ore shipments. This trend is unlikely to be reversed during the remaining half of the year.

The outlook for 1996 remains optimistic, with demand and prices for steel and iron-ore products likely to rise further. And, as scrap prices continued to escalate, the competition between iron ore-based and scrap-based routes for iron-making has become more acute.

The iron ore industry is gradually moving to integrate environmental objectives into its overall business goals, the report says. Despite differences in national environment laws, solutions to deal with problems of mining wastes and rehabilitation of mined out areas are being found.

"Nevertheless," the report adds, "the issue of how to internalize environmental costs without distorting competitiveness seems to require specific economic instruments and inter alia some universally-acceptable regulatory approach."

As a number of top quality iron ore deposits are approaching exhaustion, the iron industry is presently engaged in finding technological breakthroughs to prolong the physical life-time of high-grad ore bodies and/or to development most advanced techniques for upgrading the metallurgical composition of lower quality ores. This will not only help major suppliers to maintain their level of shipments, but will also enable them to offer new options of product mix.

For e.g., in Australia, the rapid depletion of Tom Price's deposits led Hamersley enterprise to invest in a new processing plant to reduce levels of alumina content by removing ultra-fines from all fine ores produced at Paraburdoo and Channar. In Sweden, LKAB is investing in a new haulage level at Kiruna, the world's largest underground mine, at a depth of 1045 meters (about 300 m below sea-level) to extend its life-time for 20 more years and reduce production costs. Brazil's CVRD has developed a technology to process waste recovery at Ponta de Madeira, allowing recuperation of ores that have accumulated in stockpiles.

In the present context, the report adds, classification of mineral reserves as well as parameters of economical criteria to justify development of new reserves require a re-assessment.

It is possible that deposits containing higher levels of impurities such as phosphorous, which make them unacceptable and economically unfeasible today, may have to be mined tomorrow.

The ongoing modernization of the steel industry and the gradual introduction of new iron-making technologies have induced the iron ore industry to invest in R & D to combine more efficient and environmentally sound extractive techniques with their commitment to pursuing quality standards along ISO (International Standards Organization) guidelines.

Research and Development has also been speeded to make new iron-making technologies operational as soon as possible. As lumps become scarce, pellets more expensive, and scrap prices rise, among the emerging iron-making processes, the most promising are those smelting or reducing directly high-grade low-priced fines -- avoiding any cost-intensive preparation. And from the environmental point of view, the ideal combination seems to be fines/gas prescribed by processes such as FIOR, iron carbide, and circored.

The first shipment from the iron carbide plant in Trinidad and Tobago was made in early 1995 and the plant is expected to be in full capacity by August this year. But the main challenge of this process will depend not only on the operational results of Nucor's electric furnaces, but also on testing the technical viability of extending iron carbide use in integrated steelworks.

Among the technologies using fines and non-coking coals, the most advanced are: Hismelt in Asutralia and DIOS in Japan. Both are at a experimental stage in which tests seem encouraging, but further research is needed to define the commercial viability of these new generation of iron-making alternatives.