Who benefits from the iron ore supply glut? Nobody? - Mr Russell
Mr Clyde Russell columnist of Reuters expressed his views that one question that skulks like an elephant in a room where the iron ore industry has gathered is who has benefited the most from bulging global supplies.
The Anglo Australian pair of BHP Billiton and Rio Tinto are happy to tell you how they have successfully ramped up output at costs low enough to still rake in profits. That was very much their message at this week's Global Iron Ore & Steel Forecast conference in the Western Australia capital city.
The smaller miners suffering from the collapse in Asian spot iron ore prices are only too willing to speak of their battle to survive amid what they see as the destruction of the value of an industry that is Australia's largest export earner. The price of iron ore hit its lowest on record at USD 58 per tonne, with this year's decline of 19% compounding last year's slump of 47%.
Steel industry officials in China, the destination of two thirds of the world's seaborne iron ore, will also tell you how their industry suffers from overcapacity, poor profits and the economy's shift to consumption led growth.
So all this begs the question, who is the winner of the decisions by the major iron ore miners, and some aggressive juniors, to build capacity beyond even the most heroic assumptions of global steel demand?
The big three miners, Brazil's Vale, BHP Billiton and Rio Tinto, along with number four, Fortescue Metals Group, are the prime drivers behind the roughly 330 million tonnes of iron ore capacity that has come on line, or is scheduled to start in the next few years.
To put this figure in perspective, China's iron ore imports stood at 934 million tonnes last year, up 13.9 percent from the previous year, and about double what they were in 2007.
The investment decisions for the bulk of this new capacity were taken around 2011, when iron ore prices hit a record above USD 190 a metric ton and optimism abounded that Chinese import demand would rise to around 1.5 billion tonnes sometime around the middle of next decade.
The reality has turned out somewhat differently, with the China Iron and Steel Association believing the nation's steel output has peaked at 823 million tonnes last year.
Mr Li Xinchuang, the association's deputy secretary general said that steel demand in China, which accounts for about half the global total, will gradually decline in coming years.
Assuming his forecast is accurate, the good news for iron ore is that he does not foresee a rapid decline from peak steel, rather a more gentle easing. But this implies the iron ore industry's only hope of being able to sell additional output comes from displacing high-cost producers.
Source - Reuters