Iron Ore: Global Output To Continue Rapid Growth
BMI View: We expect global iron ore production to reach 2.56bnt in 2016, an average growth rate of 5.8% from 2011 levels. This growth will be driven by the major players such as Australia and China, but we also expect new iron ore producers such as Guinea and Sierra Leone to add significantly to global levels. That said, lower prices and infrastructure risks, particularly in West Africa, could result in significant delays to projects.
Global iron ore production is set to be one of the fastest growing areas of mining output over the coming years as output growth in Australia and China, as well as new entrants from West Africa, see output rise from 2.0bnt (billion tonnes) in 2011 to 2.6bnt in 2016. This growth rate of 5.8% is a slight slowdown from 2006 to 2011 which averaged 6.5%. We expect this growth to be driven by the major iron ore producers, namely Australia, China, Brazil and India, which currently account for 74% of global iron ore output.
|Strong Growth To Continue|
|Global - Iron Ore Mine Production (mnt)|
Australia will remain the world's largest iron ore miner as output increases from 480mnt in 2011 to 625mnt in 2016. However, Australia's share of global output is set to decline slightly from 25.2% in 2011 to 24.1% in 2016 as the impact of a super tax on iron ore miners' profits and carbon emissions weigh on production growth rates. Outside of Australia, we expect China and Brazil to add 96 and 92mnt to annual production by 2016, respectively. For China, this marks a dramatic slowdown from previous years as our expectation of lower iron ore prices, a continued slowdown in Chinese economic growth and falling grades at iron ore mines in the country will reduce production growth rates significantly.
|West Africa To Emerge As Major Player|
|Select Countries - Additional Iron Ore Mine Supply By 2016, mn tonnes (versus 2011)|
Future Growth In West Africa
Aside from the major players, we expect West Africa to emerge as a centre of iron ore production. Furthermore, as little of this huge ramp up in production will be consumed domestically, we expect the region to become a centre of iron ore exports. Guinea and Sierra Leone will be the main drivers contributing an additional 140mnpta by 2016, from negligible levels at present. West Africa holds particular interest as many of the above projects are high-grade deposits of around 50-60% with cash costs are as low as US$30-40/tonne. This is particularly pertinent as mining companies are currently seeing their margins squeezed by elevated energy and labour costs and falling metal prices. Over the long term, we expect greater interest in the iron ore reserves of Liberia, Republic of the Congo and Gabon given that their governments are seeking to improve infrastructure and encourage investment in their substantial iron ore reserves.
|Work Still To Be Done|
|West Africa - Map Of Major Railways, Ports & Mines|
Risks To Outlook
The risks to our outlook are weighted to the downside, with Chinese growth and lower prices the most pertinent. If Chinese growth slowed more than even our expectations it would have a substantial impact on iron ore demand and prices. Such an event would likely see projects scaled back or delayed. In addition, projects could be delayed as rising costs and lower prices force companies to focus on their core assets. Guinea could be particularly at risk from any declines in capital expenditure as its main mines are being developed by Rio Tinto and Vale which have lower risk core assets in Australia and Brazil, respectively. Furthermore, in West Africa infrastructure concerns present an important risk to growth. Indeed, as well as unreliable electricity and water supplies, the region is beset by inadequate road and port systems which struggle with current demands. Our infrastructure team note several projects in the region, most notably, the proposed railways in Guinea and Liberia, as well as the development of a deep water port at Tagrin Point in Sierra Leone and Didia in Liberia. Whilst these projects should alleviative some concerns there still needs to be greater investment to ensure these projects are developed on time.
|Source: BMI, USGS|
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|% chg y-o-y||-0.8||-11.9||19.4||5.4||2.8||4.2||4.5||5.1||5|
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