Iron ore shipments to remain under pressure

Logistics companies involved
in the iron ore supply chain
are likely to come under
increased pressure to help
the mines and their customers
reduce costs.
According
to a report
published by the
United Nations
Conference
on Trade and
Development
(Unctad) in
February 2016,
a continuing
increase in supply
combined with a
slump in demand
made 2015 “a challenging year for
the iron ore market”.
The report was released just after
Anglo American announced that it
was considering selling off its iron
ore interests in the Kumba iron ore
mine in the Northern Cape.
This was after announcing that
it was cutting around 4 000 posts
at the mine, which is ranked as the
tenth-largest producer of iron ore in
the world.
The Unctad Iron Ore Market
Report 2015, which covers
developments in the iron ore
market in 2014
and provides an
overview for 2015–
2016, shows that
slowing growth
in worldwide steel
production meant
that the market for
iron ore entered
a new phase with
slower growth,
lower prices and
squeezed margins
for mining companies.
World crude steel production in
2015 reached an estimated 1 763
million tons, a decrease of 2.9%,
while the iron ore production
reached 1 948 million tons, down
6% on 2014.
The price of iron ore began 2015
at US$71.26 per dry metric ton, but
fell 39% by the end of the year.
This has led to ports and logistics
suppliers seeing a reduction in
volumes and increased pressure on
pricing.
“Considerable excess tonnage
remained in the world shipping
industry and freight rates stayed
low,” says the report.
The pressure is set to continue as
the world’s largest iron ore mining
companies not only expanded
production in Australia, but also
elsewhere, leading to a
substantial supply
“overhang”, according
to the report.
Demand for steel
in China is
set to grow
considerably
more slowly
than during
the past decade,
while demand in
the rest of the world
is set to pick up,
in spite of the weak
macroeconomic outlook in the Euro
zone.
New supplies will come mainly
from Vale, Rio Tinto and BHP
Billiton, the three largest producers.
None has a particularly large
presence in the South African iron
ore mining sector – which means
that the South African iron ore
sector could take longer to recover
than those in the main production
areas of Brazil and Australia.
INSERT
The South African iron ore
sector could take longer
to recover than those in
the main production areas
of Brazil and Australia.