What’s iron ore used for?
Iron ore is used essentially in the steel-making process. Iron ore is the raw material used to make pig iron, which is one of the main raw materials used to make steel. Around 98% of the iron ore mined in the world is used to make steel.
What’s the outlook for the sector?
The outlook for the iron ore sector is extremely strong. Demand from the world’s two biggest emerging economies, China and India, is growing enormously. Both economies are seeing a construction boom, particularly with respect to residential construction, which means growing need for steel and hence iron ore.
Who are the major players?
Australian and Brazil are the two biggest exporters of iron ore. Brazil’s Vale is the biggest producer in the world, followed by Rio Tinto and BHP Billiton.
Are there any interesting smaller players?
The highest profile of the emerging players is Andrew Forrest’s Fortescue Metals Group, which is ‘the third force’ in iron ore in Australia.
There are also a number of newer, small-scale participants in Western Australia, South Australia and the Northern Territory. Some of these include Atlas Iron, Mt Gibson Iron Ore and Territory Resources, to name but a few.
What’s the chance of a glut in the next few years?
Given the strength in demand it is difficult to see a glut developing. Supply is still very much struggling to meet demand, so I don’t foresee any problems with oversupply on the horizon.
How does this sector relate to steel makers such as Bluescope and OneSteel?
Iron ore is a big factor with respect to both companies. OneSteel is interesting in that it mines its own iron ore, which it utilises in two ways – firstly it uses some for its steel production and the rest it sells offshore. So it generates income in two ways. OneSteel is effectively insulated from rising iron ore prices because it mines its own.
Bluescope on the other hand has to purchase iron ore and it currently buys it from BHP. Iron ore is a major cost input in steelmaking, so rising iron ore prices affect steelmakers like Bluescope.