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Msg  38341 of 65647  at  1/16/2008 7:18:16 PM  by


Scotia conference - iron

Iron Ore - Michael Dixon, AME Mineral Economics

The iron industry is enjoying historically high profit margins as a result of

soaring Chinese demand. Mr. Dixon predicts that global iron ore

consumption will grow at a 13% CAGR between 2003-2010, compared with

less than 1% CAGR in the previous decade. The red bars in Exhibit 2 represent

Chinese consumption, which has formed an increasingly greater fraction of

total world consumption since 2000. Chinese iron ore consumption will grow

in proportion to steel consumption, which is predicted to increase from 442 Mt

in 2008 to 566 Mt in 2013.

Mr. Dixon expects that China will be increasingly reliant on imported iron

ore. The country's domestic iron ore is low grade and further decline in quality

is expected. As such, it is necessary to import ore to offset the low quality of

China's domestic ores. Mr. Dixon forecasts that China will import 50% of its

ore consumption by 2010, up from the current 36%. Imports in the rest of the

world are expected to remain relatively flat by comparison.

New projects and expansions are in development to ease tightness in the

iron ore market. High demand has encouraged fast tracking of new projects

and expansions, both from new players in the market and the major producers.

Mr. Dixon predicts that tightness in the iron ore market will ease after 2009 as

new supply becomes available.

Mr. Dixon predicts that iron ore contract prices will rise 25% in 2008.

Prices will remain flat in 2009, and modest declines are predicted in 2010 as

new supply is added to the global seaborne market.

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