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Last updated on April 17, 2014 at 21:23 EDT

Iron Ore Industry to Remain Turbulent Through to 2020

November 14, 2012

LONDON, November 14, 2012 /PRNewswire/ –

With the disruption of supplies from India, concerns over slowing economic growth in
China, and the effects of large stockpiles forcing the price of iron ore through a series
of supposed “price floors”, the iron ore industry has faced a turbulent time during 2011
and 2012. While the price of iron ore appears set to make a partial recovery, Roskill’s
new report offers a deeper level of insight into the dynamics driving the market, and
offers a market outlook to 2020.

Increased concentration, vertical integration and foreign ownership is likely

From 2006 to 2011, the promise of a high return on investment led to a decrease in the
concentration of corporate control of seaborne trade in iron ore. During this period, the
share of seaborne trade controlled by Rio Tinto, BHP Billiton and Vale (the “Big Three”)
fell to 57.3% of the world total. This trend is expected to reverse to 2020, as the
limited availability of capital will make securing project financing increasingly
difficult for emerging producers. Much of the increase in capacity is expected to come
from capacity expansions in Australia and Brazil and from projects backed by leading steel
producers seeking to secure future supply.

New capacity will exceed growth in demand and force high-cost operations out of the
market

Downward revisions in the long-term outlook for iron ore demand and prices are likely
to lead to the delay, suspension or cancellation of a large number of projects.
Nonetheless, Roskill estimates that 425Mtpy of nameplate capacity will be added from the
middle of 2012 to the end of 2014 and that capacity additions will continue to exceed
100Mtpy through to 2020. These additions are likely to exceed demand growth and mostly
represent low to medium-cost operations. Consequently, producers at the higher end of the
cost curve – particularly those in China – will gradually find themselves unable to
compete in the open market.

Demand for steel is expected to grow at a slower rate

In 2012, a destocking phase among steel producers depressed demand for iron ore and
the World Steel Association expects apparent consumption of finished steel products to
grow by only 2.1% in 2012, down from 6.2% in 2011. A partial recovery appears likely, as
the construction sector in China and increased infrastructure spending will support growth
in demand. During the period to 2020, however, rising demand from other emerging nations
is unlikely to fully offset the slowing pace of growth in the intensity of steel use in
China, as this country approaches a peak in per capita steel consumption.

Roskill expects growth in apparent crude steel use to average 2.9%py from 2012 to
2020. Owing to the ongoing shift of steel production to countries with a higher use of
iron ore per unit of steel, Roskill forecasts that demand for iron ore, at 3.1%py, will
marginally outpace steel demand, despite a relative increase in the use of scrap metal.

Prices are likely to remain volatile

Uncertainty over the Eurozone affects the iron ore industry through its effect on
demand, as well as on the reduced availability and higher cost of capital. Revisions of
figures on Chinese growth targets and performance are likely to result in further
short-term peaks and troughs, although much of the adjustment to a more realistic outlook
has already taken place – albeit some rebound from excessive and unwarranted pessimism may
be expected. Other risk factors include growing resource nationalism, particularly in
Africa, highly unpredictable energy costs, rising labour costs, and the fate of the Indian
mining industry following the mining bans in Goa and Karnataka states.

Following the slump in prices from June to September 2012, Roskill expects prices to
remain above US$120/t cfr for 63.5% Fe content Indian fines until the end of 2014, while a
restocking phase may push prices towards US$135/t during 2013, although large fluctuations
are not unlikely. As new capacity comes on-stream, the industry’s price floor will
gradually drop and Roskill expects that the US$100/t price level will be repeatedly tested
and eventually broken towards 2015. In its baseline scenario, and adjusting for inflation,
Roskill expects that prices may trend towards US$85 to US$95/t during 2016 to 2020.

The report contains 350 pages, 182 tables and 63 figures. It provides a detailed view
of the iron ore industry, with subsections on resources, world production, leading mining
and processing companies, world consumption, demand by end-use sector, international trade
and prices. It provides forecasts of supply/demand balance and prices.

‘Iron Ore: Market Outlook to 2020, 7th Edition, 2012′ is available at GBP4,500 /
US$7,500 / EUR5,900 from Roskill Information Services Ltd, 54 Russell Road, London SW19
1QL ENGLAND. Tel: +44(0)20-8417-0087. Fax +44(0)20-8417-1308. Web:

http://www.roskill.com/iron-ore.

Roskill Information Services Ltd.

Approachable. Independent. Expert.

Roskill is regarded as one of the leading global sources of industrial minerals, minor
metals and steel alloys market research. Roskill has an international presence with
analysts based in the UK, Canada and China, along with an expert network of industry
consultants and contacts around the world.

For further information on this report, please contact Judith Chegwidden
(jchegwidden@roskill.co.uk). To be added to our press distribution list please contact
Isobel Jarvis (isobel@roskill.co.uk)

SOURCE Roskill Information Services


Source: PR Newswire