Mumbai, July 16
THE biggest bull market in iron ore history culminated in a 71.5 per cent rise in iron ore fines prices in 2005.
Steel prices have recently started to fall and spot freight rates have collapsed.
What is the iron ore outlook? Is it all over for the market? "Definitely not," according to Mr Jim Lennon, analyst with Macquarie Bank, who made a presentation at the annual dry bulk shipping market outlook conference in London recently. The expert said China and China alone has driven the bull market in iron ore since 1990.
The sea-borne market has grown by 305 million tonnes, of which China has accounted for 250 million tonnes (mt) or 82 per cent; and since 2000, the country has accounted for as much as 93.5 per cent of growth, he pointed out, adding that China will continue to dominate iron ore sea-borne growth.
Forecasting that iron ore market will remain balanced to short up to 2010, the analyst said the market would be impacted by how quickly new projects can ramp up. Capital cost overruns and shortage of equipments and people would remain an issue.
While falling steel prices and more supply of iron ore will lead to lower iron ore prices in 2007 and 2008, high prices would attract (albeit, temporary) surge in Chinese and Indian iron ore supplies.
There has been a huge leap in world steel growth since 1999 - 268 mt during 1999-2004 versus fluctuating growth /degrowth during the previous five-year periods. China is the main, but not the only reason, for this growth.
China represented 56 per cent of growth since 1989, India 2.9 per cent, other Asia 11 per cent, Former Soviet Union 8 per cent, Latin America 4.7 per cent and Japan, West Europe and the US combined 10 per cent.
There has been a phenomenal growth in Chinese steel (crude steel production up 37.5 per cent year-on-year in May to annualised rate of 350 mt per annum), but it is now balanced between demand and supply.
Currently, world supply of steel exceeds demand, leading to production cuts and falling prices. Steel production cuts have now started to come through, but not in China, yet.
Chinese demand is unlikely to collapse anytime soon, according to Mr Lennon. He said growth rates are adjusting down as the Chinese Government puts the economy on a more sustainable footing to ensure continued growth. Due to quality problem and market saturation, China is unlikely to become a major exporter, but exports will rise despite government attempts to stop them.
Also, Chinese mills are unlikely to slash production between now and end of the year, but the pace of growth will slow as some loss making plants close.