Steelmakers and iron ore miners will see future demand shift based on inflation, lingering COVID-19 and emissions reduction

By Anton Löf & Olof Löf

In 2021, the recovery from the shock of COVID-19 was stronger than expected in many regions, this despite continuing supply chain issues and lingering COVID waves. However, the sharper deceleration than anticipated in China ultimately led to a local decrease in demand in 2021 which kept global growth down.

Global crude steel production reached 1,951 million metric tons (Mt) in 2021 according to the World Steel Association (WSA), a new global all-time high. This is an increase of 3.8% over 2020, and the sixth consecutive year of growth.

As in the previous year, there were significant differences across regions. Chinese crude steel production decreased by 31.9 Mt in 2021, down 3%, compared to 2020. At 1,033 Mt China continues to be, by far, the largest producing country, however, its share of total production has decreased from 57% in 2020 to 53% in 2021. India the second largest producer and the only other producer with an output of more than 100 Mt of crude steel in 2021 accounted for 6.1% of global steel production. There are six countries with national production of more than 50 Mt of crude steel in 2021, including Japan (96.3 Mt), USA (85.8 Mt, Russia (75.6 Mt) and South Korea (70.4 Mt). These countries together accounted for 76% of global production down from 77% in 2020.

Table 1 — Crude steel production for the six largest steel-producing countries in 2021 (million mt, %). Source: RMG Consulting 2022

According to the OECD, global steelmaking capacity at the end of 2021 was 2,454 Mt. This represents four years of consecutive growth. 2021 represents a new peak in global steel production capacity. Steelmaking capacity in the year 2000 was 1,132 Mt. Up till and including 2021 some 1,322 Mt of capacity has been added. In aggregated numbers the capacity-to-production gap has increased from 282 Mt in 2000 to 503 Mt in 2021. Using OECD figures for capacity and end-of-the-year WSA production figures, gives a global capacity utilization ratio (production of steel as percent of capacity) of 78% in 2021 up from 75% the year before. This is a relatively high utilization rate compared to the last 20 years. At its low, in 2009, it was only 61%.

There are several projects that will potentially add steelmaking capacity over the years 2022-2025. According to the OECD capacity in 2025 may reach somewhere between a low of 2,514 Mt and a high of 2,605 Mt.

Iron Ore Production

Global output of iron ore increased by 6.8% in 2021 and reached 2,477 Mt. Australia is the most important producing country, mining 37% of all iron ore globally (down from 40% in 2020). Brazil, the second most important country, accounts for 16% of global production (down from 17%) and China, the third largest producer, for 11% (up from 10%). Together the three leading countries thus account for 64% of total production (down from 66%). There are two more countries producing more than 100 Mt, India and Russia, together the five most important iron ore producing countries account for 79% of all iron ore produced in 2021 (down from 80% in 2020).

During 2021 Australia increased iron ore output by 4.1 Mt, or by 0.5% reaching 922 Mt. Since 2019 production has thus only grown by 0.6%.

Brazilian production increased by 2.9% reaching 399 Mt. The country is still struggling to get production back to its former peak at 454 Mt in 2017. The fall in production is linked to two tailings dam disasters, as well as strict COVID-19 restrictions.

In Asia, the larger producing countries are in order: China, India and Iran. All other countries produce less than 10 Mt except Viet Nam that in 2021 increased production by more than 100% reaching slightly more than 10 Mt. Crude ore output in China reached 983 Mt, up 13% compared to 2020 and the third year of consecutive growth. This is however still far from the peak of 1,592 Mt reached in 2014. Crude ore production in China, however, is extremely low grade compared to seaborne traded iron ore. The 983 Mt figure would be comparable to roughly 266 Mt of seaborne traded iron ore and the peak production figure of 1,592 Mt would be equivalent to 325 Mt seaborne traded iron ore.

Indian iron ore production increased by 22% and reached a new peak at 249 Mt. Output in Iran, the third most important Asian iron ore producing country increased by 4.2% to 56 Mt.

In Europe, including Russia, Ukraine and Kazakhstan, production increased by 8.7% in 2021, up to 265 Mt. With Russia’s invasion of Ukraine, it is likely that production from those two countries will fall in 2022.

African production increased, up 27% at 101 Mt. In South Africa production decreased by 31% reaching 73 Mt, while in Mauritania production increased by 0.5% reaching 13 Mt. The two countries account for 85% of total African iron ore production.

During the last decade, with the exceptional increase in production in Australia and falling production in China and Brazil, the share of iron ore being produced by low- and mid-income countries (developing) has declined from top levels at 73% in 2007 to a low of 54% in 2020. In 2021 the share increased somewhat for the first time in six years reaching 56%.

Iron Ore Trade

Global iron ore exports increased for the second year in a row and reached 1,610 Mt, up 0.6% year-on-year. World total iron ore exports have increased roughly 38% during the past 10 years and roughly 200% during the last 20 years.

Australia is by far the largest exporter of iron ore with a market share of 54%, the country has had the same share of exports since 2018. Exports from Australia was stable, up 0.3% during 2021, reaching 872 Mt. The second largest exporter, Brazil has a market share of 22%, an increase compared to 2020 when its market share was 21%. Brazilian exports increased by 4.1% in 2021, compared to 2020, and reached 355 Mt.

South Africa, the third largest exporting country shipped 68 Mt of iron ore in 2021 and Canada the fourth follow with 54 Mt. The fifth largest exporting country globally 2021 was Ukraine with 45 Mt. Together the five most important iron ore exporting countries accounted for 87% of total exports in 2021, up from 86% in 2020. Among the larger exporting countries, India decreased its export by 32% in 2021 and was surpassed by Ukraine.

Figure 1 — Iron ore production in 2021 (million mt). Source: RMG Consulting 2022

China alone accounted for 70% of global iron ore imports in 2021, down from 74% in 2020. During the year China’s imports decreased 5.1% reaching 1,110 Mt. In 2021 Chinese import dependency of iron ore was 81% a decrease of two percentage points over last year. In the coming years, with slowing growth, and potentially even negative growth, in steel production, and increased availability and use of local scrap, Chinese demand for iron ore units should decline and import dependency with it.

The second largest importer of iron ore is Japan with 113 Mt in 2021. Together the five largest importing countries account for 86% of the market. Seaborne iron ore trade in 2021 increased by 0.2%, up 4 Mt, to 1,547 Mt.

Iron Ore Pellets

Global production of pellets in 2021 increased to 579 Mt, up 9.4% compared to 2020. Exports of pellets also increased in 2021 reaching 135 Mt, up 3.3%. The largest iron ore pellet exporters are in order: Brazil, Sweden, Ukraine, Canada, Russia, USA and India.

During the last couple of years, the share of pellet production has increased from a low of 19% in 2016 to 23% today. The tailings dams failures in Brazil underlined the sensitivity of pellet demand to world market conditions and prices. Production at the Samarco facilities started up again late 2020. However, in 2015 Brazilian total production of pellets was 63 Mt, in 2021 production increased by more than 40%, but it was still only 32 Mt.

Table 2 — Top iron ore producers, 2021 vs. 2020 (million mt, %). Source: RMG Consulting 2022

Iron Ore Prices

2021 started off with an iron ore price of $164/mt (62% Fe fines delivered in China) the highest price since early 2012. All throughout 2020 the iron ore price had increased, and it would continue to increase until the end of July 2021, reaching a peak of $220/mt. However, the first day of trading in August the price dropped 15%, and it would continue to fall until the end of November when prices started to increase yet again.

Manufacturing activity, underpinned by pent-up demand, supported a sharp recovery of steel consumption during the first half of 2021. During the months January-June 2021 global steel production rose by 14% compared to the same period the year before. During the same period iron ore production by the 10 largest iron ore mining companies only increased by 3%, supporting a rise in the iron ore price. According to the WSA, a sharper-than-anticipated deceleration in China during the second half of 2021 led to lower global steel demand growth over the year. In the second half of 2021 steel production slowed 6.1% compared with July-December 2020. Iron ore production in the second half of 2021, on the other hand, increased by 0.7% compared to the same period as last year and by 8.3% compared to the previous half year, all factors that made the iron ore price slide, reaching $92/mt by November.

Late 2021 and during the first months of 2022, the price increased again. However, the recovery of the Chinese steel demand in late 2021 spilling over in the first quarter of 2022 came to an end in the second quarter with new Chinese COVID-19 lockdowns. Further, on February 24, 2022, Russia invaded Ukraine. The war triggered a severe supply chock along the steel value chain which came to influence the iron ore price during the first couple of months of 2022. But the longer-term effect of the war was a deterioration of the global economic environment as energy prices soared and inflation jumped up. With reserve banks increasing interest rates also the iron and steel industry was affected. From the heights of $162/mt in early April, the iron ore price has been on a steady decline and late November the price of iron ore was $91/mt. The lowest since November 2021.

The price premium for high-quality iron ore fluctuated widely over 2021 from lows of $14/mt to highs of $40/mt. On average, iron ore with 65% Fe commanded a 17% higher price than iron ore with 62% Fe. During 2022, up till and including November, the difference between 62% and 65% Fe has narrowed. The year started at a high of $35/mt and has continuously moved downwards reaching $13/mt by the end of November. Percentage-wise, an iron ore of 65% Fe fines commanded on average a 16% higher price compared to an iron ore of 62% Fe fines.

Project Pipeline

Currently there are several iron ore projects in the pipeline following the increased iron ore price of the last three years. Not all pro-
jects will however increase the overall iron ore production capacity, many projects are primarily designed to maintain production volumes as resources are mined out. Mines have generally become bigger during the recent decades and keeping production running smoothly is more problematic than many analysts assume.

Capital expenditure (capex) can be divided between “stay-in-business” and “expansion-capex.” The expenditure to stay in business are a part of a company’s normal actions and these costs need to be included if the marginal price of production is to be correctly understood. With increased overall production volumes, the industry’s total stay-in-business capex will increase, and the market will see more and more projects and investments to simply maintain production volumes. At the same time, costs are increasing both to find new resources and to develop them. Below, some of the most important and interesting projects of today are discussed.

In Brazil, Vale targets capacity of 400 Mt/y in the medium term by increasing production across operations through debottlenecking and restart of temporary closed operations. There are currently three projects in the pipeline to realize this vision: Northern System 240 MtCapanema and Serra Sul 120 Mtpy. Northern System 240 Mtpy will add 10 Mt/y in capacity at a cost of $772 million and start up is estimated to the end of 2022. Currently the project is 85% complete. Capanema will add 18 Mt/y capacity at the Timbopeba site, and it is estimated to be completed in the first half of 2024 at a total cost of $913 million. As of the end of the third quarter of 2022, the project was 21% complete. Serra Sul 120 Mtpy consists of increasing the S11D mine-plant capacity by 20 Mt/y at a cost of $1,502 million. As of the end of the third quarter of 2022, this project was 31% complete, and it is expected to be finalized by the second half of 2025. The Gelado project is almost completed (97%) at a cost of $428 million the project will add 5 Mt/y in capacity during its first years and later ramp up to full capacity of 10 Mt/y. Further, Vale has a project to install briquette plants at Tubarao with a capacity of 6 Mt/y and it is 53% complete. The project is expected to be finalized in the first half of 2023, for the first of two plants, and in the second half of 2023 for the second.

In Australia iron ore projects account for A$4,100-5,000 million of potential investment expenditure according to the office of the Chief Economist late December 2021. There are currently six committed projects with an investment total of A$1,100 million, all located in Western Australia. At the feasibility stage there are 12 projects with a potential investment value between A$1,600-2,200 million and another 12 that has been publicly announced at a cost of A$800-1,000 million. During 2021 four projects was completed, at a total investment of A$6,400 million. Exploration expenditure for iron ore increased by 31% in 2020/2021 and reached A$473 million, in comparison growth in 2019/2020 was 12%. At its peak in 2011/2012 exploration expenditure was A$1,200 million, while far from those numbers exploration expenditure is still the highest since 2013/2014.

Rio Tinto recently completed its Gudai Darri 43 Mt/y mine — the company’s first greenfield iron ore project in over a decade — which delivered its first ore in June 2022. Further Rio Tinto has agreed to form a joint venture with China Baowu Steel Group to develop the Western Ranges iron ore project in the Pilbara, Western Australia. Construction is expected to begin early 2023 with first production in 2025. Capacity would be 25 Mt/y at a total cost of $2,000 million.

Fortescue Metals Group co-owns (FMG 69%) the Iron Bridge Magnetite Project with Formosa Steel. The project is progressing and it is estimated to cost $3,600-3,800 million and have a capacity of 22 Mt/y of high-grade (67% Fe) iron ore. First production is scheduled for the first quarter of 2023, with a ramp up period of 12 to 18 months.

Figure 2 — Iron ore trade in 2021 (million mt). Source: RMG Consulting 2022

Also in Australia, Grange Resources is working on its Southdown iron ore project. The company completed an updated pre-feasibility study in February 2022. The report suggests a 5 Mt/y mine of magnetite concentrate at 69.5% Fe at a cost of A$1,390 million. Grange has announced that the company will proceed with a definitive feasibility study and expects the report to be completed in 2022. The project is forecasted to start construction in 2024-2025 and see a first production in 2026.

Atlas Iron, the Australian company owned by Hancock Prospecting operates several projects. The McPhee Creek mine has an expected capacity of 9.5-9.7 Mt/y and an investment decision is expected in mid-2023. The Ridley Magnetite project is currently in the feasibility stage and will have a capacity of 3 Mt/y in a first stage, with the option of expanding to 16.5 Mt/y. The company also operates the Mt Bevan Magnetite project which is in an early stage.

Other projects in Australia include for example Sinosteel Midwest Groups’ Koolanooka, Blue hills, Weld Range and Jack Hills as well as Alien Metals Hancock project.

In Ukraine, Ferrexpo has, because of Russia’s invasion of Ukraine, reduced its activities on the Wave 1 Expansion, which represents the next phase of growth for Ferrexpo. The Wave 1 Expansion is the combination of investment projects in mining, beneficiation and palletization that collectively will add 3 Mt/y of pellet capacity.

In Africa projects are slowly being revitalized. In Guinea Simandou, one of the world’s largest undeveloped projects is slowly moving forward. Rio Tinto is the owner of the Simandou block 3 and 4. During late 2019 Simandou blocks 1 and 2 were auctioned. The winning bid came from the SMB-Winning consortium, formed by the Singaporean shipowner Winning Shipping, the Chinese aluminum producer Shandong Weiqiao, the Yantai Port group as well as the Guinean transport and logistics company United Mining Supply.

The SMB-Winning group is currently mining bauxite in Guinea. The initial plan was to commence iron ore production by 2025 and the mine would produce somewhere around 60-80 Mt/y. These plans have been revised and production capacity target is now 100 Mt/y.

On the July 27, 2022, Rio Tinto announced that they had formed La Compagnie du Transguinéen, a joint venture between the Government of Guinea, Winning Consortium Simandou and Rio Tinto Simfer for the development of the railway and the port infrastructure that will enable the development of the company’s Simandou iron ore project in Guinea.

Close by, on the border to Liberia are the Zogota and Nimba projects. The Nimba project is operated by High Power Exploration through the Société des Mines de fer de Guinée and the company is planning to mine 450 Mt of ore over a period of 15-25 years. The Zogota project is operated by the Elenilto Group. All the projects in Guinea are located in the mountainous region in the interior of the country and demand the construction of a new railway, a quite complicated infrastructural project.

In the Republic of the Congo, the Zanaga project, a joint venture between Zanaga Iron Ore and Glencore, is continuing. The mine is intended to produce 12 Mt/y in a first stage and raising output to 30 Mt/y in a second stage. Multiple early production scenarios are also under consideration. Late 2022 Zanaga Iron Ore have suggested to take over the ownership from Glencore through a share financed buyout.

In August, an agreement was signed by the Fortescue-backed joint venture, Ivindo Iron SA, to explore the Belinga iron ore project in Gabon. Belinga is seen as one of the largest untapped reserves of high-grade iron ore in the world, with prior estimates suggesting an annual production capacity of 30 Mt/y. Located around 500 km east of Gabon’s coastal capital Libreville, the project would require extensive port and rail infrastructure to bring product to the market. Fortescue is expecting an exploration program of around $90 million over 3 years.

In South Africa, Kumba continues with its $400 million Kapstevel South project at the Kolomela mine. The project will contribute to sustaining production at 13 Mt/y and extend the remaining life of mine. The project is planned to be finalized in 2024. Kumba is also implementing ultra-high dense media technology at the Sishen mine. This will increase premium pro-
duct production and lower the cut of grade of the mine increasing the life of mine. The project is estimated to cost $200 million and be completed in 2023.

In Canada, Champion Iron took the decision to go ahead with its Bloom Lake expansion project phase II in late 2020. The project will double production capacity at the Bloom Lake mine to 15 Mt/y of high-grade iron ore. The company also operates the Kamistiatusset and the Consolidated Fire Lake North projects.

In the Nordic region, Tacora resources who acquired the Sydvaranger mine in northern Norway in January 2021 has still to communicate any timeframe for the mines restart as the company focuses on its Canadian assets. In Sweden Grangex is in the planning phase of restarting the Dannemora iron ore mine which closed down 2015. Other projects in Sweden include for example Beowulf’s Kallak project, which after a long delay was awarded an exploitation concession in the first quarter of 2022. Beowulf are planning to finalize a scoping study by the end of 2022 and are foreseeing start of mining in 2026.

While there are many projects to develop new mines there are also many other projects linked to the iron ore industry. As the steel industry is increasing its investment into green steel technology and countries in general are moving towards stricter environmental regulation and the industry face increased costs for CO2 emissions, demand for higher grade iron ore is set to increase, and the mining industry is responding. For example, Vale has signed three agreements to develop so-called Mega Hubs in the Middle East alongside local authorities seeking to find low-carbon solutions for the steelmaking industry. Vale will build and operate concentration and briquetting plants within the hubs, with a view to supplying the global markets. Another example is the Port Cartier pellet plant that is set to move from the production of blast furnace pellets towards direct reduction pellets, and in Sweden LKAB is going ahead with its plan to restructure its business to sell sponge iron instead of iron ore and pellets. These developments favor projects that are to produce high-grade iron ore products, and the new interest in magnetite projects is an example of this.

Corporate Concentration

Corporate concentration in the iron ore industry has remained fairly constant over the last couple of years. In 2021, the 10 largest iron ore companies controlled 56% of global production compared to 58% in 2020. In establishing corporate concentration production is attributed to a controlling company, this figure may differ from total production in a mine as certain operations are joint ventures and production thus attributed to two or more companies depending on the defined control of the mine.

Vale, the Brazilian mining giant, has struggled to maintain production volumes as a result of COVID-19 and the two tailings dam disasters. But in late 2020 Samarco, the 50:50 joint venture with BHP, restarted production at 26% of total capacity. Samarco had been idled since 2015 and the first of the dam disasters. Vale’s controlled production increased in 2021 compared to 2020 with 5.9% and reached 318 Mt. The company thus remains the world’s largest iron ore producer. Vale’s market share stayed the same at 13% in 2021, the peak was reached already in 2007 at 19%. All of Vale’s iron ore mines are in Brazil.

Rio Tinto, the second largest iron ore miner controlled 277 Mt of production in 2021, down from 286 Mt the year before. Rio Tinto has a market share of 11%, down from 12% in 2020. Most of Rio Tinto’s mines are in the Pilbara region in Australia, in addition the company controls the Iron Ore Co. of Canada (IOC), together with Mitsubishi and Labrador Iron Ore Royalty Income Corp. IOC has mines in Labrador in Canada.

The market share of BHP came to 10% in 2020 with a controlled production of 251 Mt, down from 255 Mt in 2020. This makes BHP the third largest iron ore producer. All of BHP’s mines are in Western Australia except for the Samarco joint venture in Brazil together with Vale.

Table 3 — Corporate concentration in iron ore industry, 2019-2021 (million mt, %). Source: RMG Consulting 2022

FMG’s production increased in 2021 and reached 189 Mt compared to 177 Mt in 2020. All the company’s mines are located in Western Australia. FMG’s share of total world production in 2021 was 7.6% the same as the year before.

Hancock Prospecting, the privately owned emerging Australian iron ore giant, controlled by Gina Rinehart, has grown rapidly during the last couple of years. The company owns the Roy Hill mine (100%) and the Hope Downs mine in a JV with Rio Tinto. Both mines are in Western Australia, and in December 2018 Hancock acquired the Australian mining company Atlas Iron to further boost its iron ore production. Production began in 2016 at the Roy Hill mine and Hancock has rapidly become the fifth largest iron ore miner in the world producing an estimated 91.5 Mt 2021, a market share of 3.7% down from 3.9% the year before.

The measurement of corporate control at the production stage underestimates the real concentration of the iron ore sector, especially by the three largest companies. Large portions of total output of iron ore do not enter the market but are produced at captive mines or mines which have a protected or restricted market. The corporate concentration, if measured by the share of global seaborne trade, is considerably higher. Vale alone controls 21% of the total world market for seaborne iron ore trade, and the three largest companies, in 2021, controlled 55%, the same as last year but a slight decrease from 56% in 2019. Among the top 10 producers the six largest sells almost all their iron ore on the open market, the other four all produce steel from a large proportion of their iron ore production. These top six accounted for 77% of the market in 2021 up from 76% 2020.

In the longer term, however, Vale has restarted closed operations and is set to reach full capacity in 2030. Should the company be able to reach its 2018 production levels, a reversal of the decline the company has experienced will materialize. Considering further that Vale is planning for a 400 Mt/y capacity addition, a future scenario with a higher corporate concentration for all the top six companies, is highly likely.

For many years the industry was dominated by the top three producers the “big three” (Vale, BHP Billiton and Rio Tinto). However, since FMG started production, this group has continuously increased its production and there is reason to include FMG among the largest companies in the “big four.” These four each produce more than 150 Mt/y. Discussing those companies that cater to the export market there is a middle group, 90-60 Mt/y, consisting of the Australian company Hancock Prospecting (Roy Hill) and Anglo American (South Africa). Below there are several companies producing between 20-40 Mt/y, examples include CSN (Brazil), Cliffs (USA), LKAB (Sweden), Metinvest (Ukraina), Metalloinvest (Russia) etc. Hancock Prospecting has increased production capacity swiftly since the opening of the Roy Hill mine. Between 2020 and 2021 production was relatively stable but the wholly-owned subsidiary Atlas Iron is planning to ramp up production which should most probably take Hancock Prospecting above 100 Mt iron ore production per year. But there is still some way before Hancock can join the largest companies in a “big five” group.

Table 4 — Iron ore production by company year-to-date September 2022 vs 2021 (million mt, %). Source: RMG Consulting 2022

Market Outlook

Global economic growth in 2021 increased 6% according to the IMF October World Economic Outlook. Projections by the IMF is for a 3.2% growth in 2022 followed by a 2.7% growth in 2023. This is a much bleaker outlook than a year ago. Compared to the April version of the same report, prospects for growth has been revised downwards with between 0.4-0.9 percentage points for the coming years. With inflation levels not seen in decades, Russia’s invasion of Ukraine and Chinese COVID-19 restrictions, the global economy is experiencing the weakest growth profile since 2001, except for the global financial crisis and the COVID-19 pandemic. On top of these risks, the outlook remains unusually large to the downside.

During 2021 world crude steel production increased by 3.8%, according to the WSA. For the first 10 months of 2022 global steel production however decreased by 3.9% compared to the same period the previous year. The WSA’s Short Range Outlook October 2022 for world steel use, anticipates a decrease in world steel demand by 2.3% in 2022, followed by an increase of 1% in 2023. China, on which so much depends, is forecasted to contract by 4% in 2022 and have no growth in demand for 2023. Chinese demand 2022 for finished steel products would thus be 914 Mt, this can be compared to the production of crude steel which was 1,033 Mt in 2021. Chinese exports of steel products in 2021 was 66 Mt. Chinese production for the first 10 months of 2022 of crude steel has decreased by 2.2%.

China’s move towards a lower GDP growth with a society where consumption rather than investments is the driving force of economic activities is negatively impacting the growth potential for steel demand. GDP growth in China, according to IMF, is forecasted for 2022 to be 3.2%. While this is certainly influenced by Chinese lingering restrictions, local GDP growth has continuously fallen since 2010, excluding the rebound in 2021 from the most severe effects of COVID-19.

For the first three quarters of 2022, 10 major iron ore mining companies, which reported quarterly figures, produced 948 Mt of iron ore. This represents a decrease of 1.9% compared to the same period in 2021. Chinese imports during the period January-October 2022 decreased by 1.8% compared to the same period 2021. Chinese imports, for the first 10 months, were a total of 918 Mt, on an annualized rate this would be equal to 1,102 Mt. Demand for iron ore from the global steel sector in the first 10 months of 2022 decreased by 2.6%. As the need for iron ore has decreased more than the top ten iron ore producers’ production it seems reasonable to assume that corporate concentration in 2022 will grow slightly.

The very high iron ore prices recorded in the second quarter of 2022 are tapering off. Swing iron ore producers in China and elsewhere are seemingly exiting the market. The global economy is slowing down and the larger iron ore miners are producing at a lower volume. Russia’s invasion of Ukraine has also put an end to production in Ukraine, as well as severely hampering Russian exports. At the same time steel demand is forecasted to decrease and production for the first months of 2022 is also down. But beyond 2022, inflation is argued to be reaching its peak in the first half of 2023, IMF is forecasting growth, if a modest one and China, can it exit the hampering COVID-restrictions, should rebound yet again with an increased steel demand.

At the same time the steel industry and the iron ore mining companies are preparing for a change in the industry. Currently the steel industry is one of the larger emitters of greenhouse gases but several of the larger steel companies are investing to reduce emissions. Increased efficiency is one of the easiest ways to reduce energy use. This will bolster the use of higher-grade iron ores as well as pellets. There is also a move from the blast furnace route towards the direct reduction route. Direct reduced iron has increased from year to year both in tonnages and as a percentage of total metallics produced and, with new technologies where hydrogen can be used instead of natural gas, there is true potential for a “green steel” with zero greenhouse gas emission. While this development will not make the blast furnace obsolete any time soon, it will slowly change the demand structure for iron ores.

The DR route requires very high Fe grade pellets usually made from magnetite. Currently most production of iron ore globally are hematite and ores of mid- to low-quality. There may come a situation where high-grade iron ores are in short supply while lower grade ores and 62% Fe ores are in oversupply. This development would be underpinned by local regulations restricting emissions of both greenhouse gases and airborne particles. The EU is moving in this direction, also China has increased the environmental standards its’ steel companies need to adhere to. This would increase the spread in price between high-grade ores and other ores to the benefit of high-grade iron ore producers as well as producers of pellets.

The iron ore price is a reflection of supply and demand and late 2022 and into 2023 most factors point towards a slightly higher supply than demand. Thus, iron ore prices will, most probably, be weak in the coming year moving sideways from today’s $93/mt. There are however upsides to this subdued forecast, should China manage to exit its’ COVID-19 restrictions steel demand may take off catching iron ore producers off guard with increased prices as a result. Also, if Ukraine and Russia can come to an agreement the macro-economic environment should improve with a potential increased demand of steel as a result. 

Fundamentally, steel, and consequently iron ore, is needed to build societies and while there may come a time when scrap is enough to satisfy demand, we are currently far from that point in time. Moreover, the green transition will add to steel demand from, for example, infrastructure, electric grids, foundations, railroads etc. and while the industry is changing, fundamentals stay the same, and for the foreseeable future the global society will need more steel.

Anton Löf and Olof Löf are with RMG Consulting, an independent consultancy based in Stockholm, Sweden. For further details, contact Anton Löf at