Short of a complete meltdown in China, which he believes is highly unlikely, Raw Materials Group CEO, Magnus Ericsson, says iron ore demand will continue to grow for at least the next 20 years.
Speaking to Mineweb at the Mines and Money London conference, Ericsson says that while growth in the Asian giant is bound to slow, the demand for iron ore will remain.
He says, five to 10 years ago, China produced 300 million tonnes of steel every year and they were growing at 10%, a growth rate that implied a certain level of demand for iron ore every year.
“Now,” he says, “they’re double that volume annually in steel production, and even if growth rates then decline to half, that ends up with the same number of iron ore mines having to come on stream every year.”
At a presentation earlier in the day, Ericsson pointed out that, while much of the focus is on the spending by the country’s central committee on large infrastructure, the continuing urbanisation of the Chinese population and increasing wealth means that an equally important area of growth is likely to be “steel-intensive consumption” – items such as kitchen appliances that require fairly significant amounts of steel.
China’s main rival in the race for iron ore is, of course, India. But, Ericsson says, while India is likely to play an important role, it is unlikely ever to quite match China.
“There is a completely different society in India compared to China. There is more of a democracy and there is a certain amount of freedom in the sense that there are like the steel companies and the iron ore miners are a bit at loggerheads of what to do with the excellent iron ore deposits. Such a situation would never happen in China. There it’s decided on a central level. But I also think that the lack of transport in India and also the land use is so much more important and they’re either not decided by the government in Delhi like they are in China.”
The supply side of the equation is just as positive from a pricing point of view because, it is becoming tougher and tougher to find deposits and get the ore to the right places.
“It’s getting more and more difficult to get that iron ore capacity on stream. The mines are further away from export ports, the grades are declining, there even sometimes underground operations necessary and they are in more difficult climatic conditions.”
And, when one considers factors such as increased environmental and regulatory considerations and a growing demand by countries that resources benefit the local populations as well, the process from you find a deposit till you open a mine is taking longer and longer.
Asked his view on prices going forward, especially given the increasing move towards shorter pricing schedules, Ericsson says, “In a number of years I’m sure we’ll see a pricing situation very similar to what we have in base metals. And that will of course mean that the volatility of prices will increase.”
“We will see a decline – we can’t have levels that we have at present or earlier this year $170 to $180 per tonne. It will drop but I think long term prices are likely to be in the order of magnitude – not going much below $100 but could have an upside of $120 or $130 for the next 20 years.”