The health of China’s economy will be the critical factor determining global iron ore prices, trade flows and seaborne demand in the short and medium term, writes Michael King

The most recent fluctuations in Chinese iron ore demand illustrated once again just how much sway the country’s steel makers have on the global iron ore and shipping markets. In June, Drewry’s Capesize Demand Index increasing by over 80% compared to May, helping pull up the Drewry hire Index by 229 points. The catalyst for the resurgence was a sudden burst of Chinese ore importing. Iron ore benchmark prices also surged reaching over $130 per tonne in July, up from $110 per tonne in May but still some 17% lower than the 2013 high watermark for prices achieved in February. These short-term peaks and troughs further reinforced just how dominant China has become in the iron ore trade as its steel sector has mushroomed over the last decade or more.

In 2012 the global seaborne iron ore trade, representing some 40% of total seaborne tonnage shipped in bulk carriers, totalled 1,110mt (million tonnes), up 4.8% compared to a year earlier. China, one of the few importing countries that registered an increase in demand during 2012, accounted for a whopping 745.4mt of the total, up 8.6% compared to 2011. China now imports around three quarters of its iron ore requirements and accounts for 64% of total world iron ore imports. By contrast, Japan in second place imports a relatively measly 132mt.

The clout of Chinese steel markers was also evident as iron prices oscillated during 2012. While prices generally headed downwards as more supply came to market, particularly from Australia, the depreciation was marked by violent volatility which was almost entirely due to changes in Chinese steelmakers’ behaviour. For example, when prices fell from just under $120 per tonne in August 2012 to below $90 a month later, most of the lurch was attributed to Chinese producers reducing steel and iron ore inventories in a bid to lower costs as margins deteriorated. Brief upturns in spot prices occurred when Chinese buyers returned to the market.

With Chinese demand so critical to global iron ore trade, the latest economic figures emerging from the world's second- biggest economy were viewed with dismay by traders. China’s manufacturing activity fell to a nine-month low in June according to one purchasing managers’ index (PMI) produced by HSBC. A shortage of credit, rising input costs and a change of policy to reduce reliance on exports under the new regime headed by President Xi Jinping were cited by analysts as major contributors to the downbeat outlook.

This has seen some analysts downgrade forecasts for Chinese GDP growth this year, sparking fresh concerns about steel production levels and, therefore, iron ore demand. HSBC has now cut its forecast for GDP growth in China this year to 7.4% from 8.2%. Others expect economic output growth to fall below 7% in the second half of this year after slowing to 7.7% in Q12013, from 7.9% the previous quarter.

We expect the official PMI to drop below 50 in July as policy tightening continues to affect the economy,” Nomura analyst Wendy Chen said. “The weak PMI reinforces our view that there is a 30% chance that GDP growth may drop below 7% in Q3 or Q4.”

Xianfang Ren, an economist with IHS, said GDP growth in China of less than 8% for five straight quarters was “a clear sign of distress”. He added:“We are especially concerned about the rather significant downslide of investment growth, led by real estate investment. The construction sector could see lots of headwinds coming forth in the second half if there is no marked change in policy course.

“Uncertainties remain huge with the domestic construction sector and external demand, and we expect China’s growth could slip even further to below 7.5% in the second half, and whole-year growth might come in just around the targeted 7.5% or lower.”

The outlook for next year is even more concerning. Nomura forecasts that China's GDP growth will slip from an expected 7.4% this year to 6.9% in 2014 and warns there is a 10 to 20% chance that growth could fall below 6% next year.

The World Steel Association anticipates a rise in world steel use by 2.9% in 2013, followed by an increase of 3.2% in 2014, but the WTA also believes China’s growth rate will slow as the economy focuses more on consumption rather than capital investments that require steel. Indeed, analysis by the United Nations Conference on Trade and Development (UNCTAD) suggests that Chinese GDP growth rates and therefore steel demand are in fact undergoing a profound change which will limit growth rates in the years ahead. But while Unctad says there are several good reasons to expect slower Chinese growth in the future, this does not automatically mean that a slowing down of Chinese growth would dramatically reduce iron ore import demand.

In its latest report — The Iron Ore Market 2012–2014 — Unctad argues that the composition of GDP growth will probably prove more important than the rate of growth in deciding China’s iron ore imports. “China is entering a period of adjustment where the share of investment in the economy will fall and the share of consumption rise, at the same time as production is reoriented towards the domestic market rather than exports,” said the report. “The shift is likely to lead to slower growth in Chinese demand for steel and other raw materials. It should be noted, however, that the shift is happening later than expected and its effects may be less dramatic than thought.

“We project annual growth in China’s crude steel production to be 5% over the period 2013–2015, while steel production in the rest of the world would grow at a rate of 3.1% per year.”

The question for international suppliers is to what extent slower Chinese GDP and steel production growth will translate into demand for iron ore imports. What is clear is that the iron content of China’s domestic ore continues to decline and producers have become less responsive to price increases than in the past as costs have mushroomed and margins been shaved. This has seen the market share of imports increase from around 30% in 2009 to between 60–70% in most months in the last year. Unctad expects the trend to continue.

“Domestic Chinese iron ore producers will have great difficulties increasing output beyond present levels, no matter what expansion targets may be set,” said the report. “This constraint is of crucial importance for the way the world iron ore market will behave in the next few years.”

Unctad expects Chinese ore use to increase from 1863mt in 2012 to about 1930mt in 2013 and then climb to 2010mt in 2014. A rising reliance on imports and better demand from non- Chinese markets will help offset any decline in Chinese steel production growth rates in terms of seaborne iron ore demand. The upshot, according to Unctad, will be a relatively “tight” world iron ore market for several years but one in which prices will most likely decline as new production comes on stream. “Chinese steel demand will grow considerably slower than during the past decade, while demand in the rest of the world will pick up, in spite of the uninspiring macroeconomic outlook in the Euro zone,” said the report. “This means that world steel demand and production will increase at rates that are high in a historical perspective but nevertheless lower than during the previous decade.”

Exactly how tight markets will be, and how low prices will fall, will be decided also by the rate at which producers increase output. The recent declines in international prices and new regulations requiring banks to increase their capital ratios and avoid risks have seen a number of projects put on hold or delayed. This has been the case even in Australia, where producers have been aided by the recent decline in the Australian dollar (the currency in which costs such as wages and taxes are paid) against the US dollar (the currency of iron ore sales transactions). BHP, example, estimates that its annual profit could be bolstered by as much as US$110 million for each one-cent gain in the U.S. currency against the Australian dollar.

According to Unctad, as of May 2013 the total new iron ore mining project pipeline contained 771mt of new production capacity due to come on stream between 2013 and 2015. Of this total around 306mt fell into the ‘certain’ category, 230mt was deemed ‘probable’ and 235mt ‘possible’.

Some 32% of the projects were located in Oceania, 29% in Latin America, 13% in Africa, 11% in both Europe and Asia, and 4% in North America. The dominance of Oceania and Latin America, and specifically Australia and Brazil, is evident in the breakdown of the ‘certain’ projects — 37% and 43% are located in the two continents, respectively.

“In general, in any given year not all ‘certain’ projects will make it and not all of the ‘probable’ ones will become a mine in the period stated by the company handling the project, but the delay rarely exceeds three years,” concludes Unctad. “Most of the ‘possible’ projects will not make it on time but many will actually get going.”

On average some two thirds to three quarters of the projects announced are eventually completed. This translates into 390-580mt of new capacity coming on stream in the period through 2015, with 500mt thought the most likely total by Unctad.

“Given the present circumstances of higher uncertainty in combination with increased difficulties to get finance for mining projects, we will probably see some start up dates being pushed, but as the long term market situation still looks fairly OK, quite a few of these projects will probably be taken forward,” said the report. “Under our relatively conservative assumptions of demand, about 230mt would actually be needed. While this implies that a surplus will develop over the next three year period, we are not prepared to make a conclusion that the iron ore market is facing imminent reversal.”

Unctad bases this conclusion primarily on the existence of two mechanisms which place a cushion under prices. Firstly, large iron ore producers can implement their expansion plans with a great deal of flexibility. And secondly, a considerable segment of the Chinese iron ore mining industry, probably as much as 150mt of annual capacity, would close if prices were to fall dramatically below present levels.

“We believe that while the market is certainly moving towards a balanced supply and demand situation, equilibrium will only be reached towards the end of this year,” said its report. “The market will remain tight, and the next few years will be characterized by a gradual adaptation of supply, by way of addition of new capacity, to a continuously growing demand.

“Prices, while continuing to decline, will stay sufficiently high over the next couple of years to keep the Chinese iron ore mining industry operating at lower, but not disastrously low levels of output. That is, between 200 and 250mt.

“For the medium to long term we will most probably see a slow fall in Chinese iron ore production. Consequently, prices will remain at levels that must be considered high from a historical perspective, with a floor at around US$100-–20 per tonne delivered in China.”

But despite the optimistic outlook from Unctad which offers some hope for shipowners in a dire market for ocean freight rates, this needs to be put into context. As Drewry points out, even though a sustained period of higher demand for Chinese ore saw a huge bounce in Capesize rates in June and early July, this only “brought hires up to levels that only slightly exceed daily breakeven levels — operating cost plus capital component — for modern Capesize vessels.”

Miners, it would seem, are far better placed than ship owners to reap profits if, as expected, demand for iron ore imports from China rises in the years ahead.

Iron ore at the Port of Hamburg 

In the first six months of 2013, seaborne throughput of iron ore via the Port of Hamburg reached 5.04mt (million tonnes). This is almost the same volume as at the same time last year — a fall of just 0.9%.

Compared to the first three months of this year, throughput in the second quarter grew by 9.5% to 2.6mt.

Besides coal, the unique, fully automated HANSAPORT terminal in Hamburg is the biggest terminal operator for the handling of iron ore. Via the Port of Hamburg, the steel mills of northern Germany are fed with iron ore (and coking coal) coming from Norway, South America, South Africa, Canada and Sweden. The heaviest block trains in Europe — up to 6,000 tonnes — are in operation in the port’s hinterland, which guarantee at raw material between the Hamburg terminals and the steel mills. 

Mine closures and ‘mindless’ policies severely hamper India’s iron ore exports 

Irony is on display in its cruellest form as India very richly endowed with iron ore resource found its exports of the mineral slipping from a high of 117mt (million tonnes) in 2009–10 to 18.37m tonnes last year, writes Kunal Bose. The twist in the tale is Indian steel mills close to ports and without mine linkages are constrained to make imports of the mineral due to serious dislocations in production and supply in some major iron ore bearing states. The Federation of Indian Mineral Industries (FIMI) is quoted saying “India is likely to import 1mt of iron ore each month this fiscal year.” A good portion of Indian imports is in the form of pellets bearing a significant degree of value addition to iron ore. India’s ore production climbing to a high of 219mt in 2010–11 on the back of rising export demand, almost exclusively from China, and domestic sales were down to 140mt in 2012–13. This is much in contrast to the scene in Australia and Brazil where large investments in anticipation of future demand in operating mines expansion and opening of new mines remain the order of the day.

Indian export setback has seen stocks at mines pithead rising to 124mt, including 104mt of ore fines causing environmental issues, space constraints and cash flow problems for mines. But why have fines such a preponderantly big share of pithead stocks? This is because fines are co-produced with lumps and constitute around 70% of mined ore. More importantly, the domestic demand for fines as of now is limited and 92% of Indian exports of ore are in the form of fines. A collapse in exports in the past few years has, therefore, led to the building of mountains of fines at mines sites. According to FIMI president HC Daga, mines closure in Karnataka and Goa — combined with mindless policy moves subjecting iron ore to penal export tax and railway freight (for ore destined for exports), which is over three times higher than on other commodities — has done iron ore producing and exporting groups in. Ore containing 62% iron from eastern parts of the country (Orissa and Jharkhand) marked for exports will have “railway freight and export tax together constituting as much as 72% of freight on board (FOB) realization.” Daga says as Indian iron ore miners contend with “exceptionally high taxes and cess and logistics costs,” they — unlike their peers in Brazil and Australia — are working on wafer-thin margins.

From no export duty at all to 5% on fines and 15% on lumps in December 2009 to a uniform 20% in March 2011 and further to 30% nine months later, the government was found in haste in flexing its fiscal muscle to discourage overseas sales of iron ore. Many find reasons to suspect that high export duty was the result of the government capitulating to sustained intensely hard lobbying by local steelmakers. Steel industry captains from Chandra Shekhar Verma (chairman of Steel Authority of India Limited) to Hemant Nerurkar (CEO of Tata Steel) have used every forum to extol the virtues of conservation of a resource (in this case iron ore) which is finite. Their argument runs along the lines that India — on course to become the world’s second- largest producer of steel — will need all its iron ore that is either proven or probable. Local value addition whenever that happens is to be preferred over exports of iron ore, they argue. The logic is, however, lost on steelmakers that value addition to the raw material and resource export can be done simultaneously to the benefit of the economy, particularly some of the country’s remotest corners where development and livelihood are entirely mines dependent. Some miners indulging in practices like deposit slaughtering, polluting environment and tax dodging led the governments of Karnataka and Goa states to put a blanket ban on iron ore mining and export of the mineral. Now following rulings by the Supreme Court Karnataka mines are returning to production in slow paces. In the meantime, however, India had lost big chunks of the export market and the vacuum created by it had been filled mainly by Australia and Brazil.

Indian steelmakers and miners are arrayed in two contesting camps with arguments and counterarguments about long-term availability of iron ore in the context of the country’s growing steel capacity flying thick and fast. The winning argument “reserves are a function of exploration. More mining and exploration will invariably lead to discovery of more resource,” 


is that of Daga. His point is reinforced by UN Framework Classification of mineral resources saying India’s iron ore resources stood at 28.52bn tonnes as of April 2010. In the three years preceding, India though had mined 997mt of ore, its iron ore resources were up 3.227bn tonnes and all of that the preferred kind hematite. This is as it should be. The reason “India being part of Gondwanaland has plentiful reserves of iron ore awaiting exploration and be proved. Australia, belonging to the same Gondwanaland, has seen accretion of its iron ore resource from 15bn tonnes in 1980 to 40bn tonnes in 2005. The magic, as I say, is in mining and exploration,” argues FIMI secretary general RK Sharma. The point is further illustrated by what happened in Goa. At the time of its liberation from Portugal occupation by the Indian army in 1961, the Geological Survey of India estimated Goa’s iron ore resources at 350mt to be exhausted in 20 years. “In reality, Goa, since its unification with India, had exported around 1bn tonnes of ore. Not only that, as of April 2010, the shore based state has its resources lifted to 927mt,” says Sharma.

India is gnawed at by very high current account deficit, that is, foreign exchange outgoings on imports far exceeding income from exports. Logically, the situation will demand of the government not to load export tax and railway freight on iron ore to an extent as to stifle its sales abroad. But the government in the case of iron ore capitulated to hard lobbying by the steel lobby. Not that there are no dissentions in the government. The mines ministry, which went on record saying that enough iron ore was stored under Indian earth to take care of requirements of the domestic steel industry for the next up to 200 years, did not find export tax hike to its liking. “In the three years to 2011–12, the country’s earnings from iron ore exports were $26.7bn. But as exports started falling sharply, foreign exchange earning opportunity lost in the last three years could be as much as $17.5bn,” according to Daga.

India’s conservationist policy — in many eyes disincentivizing of iron ore exports is a demonstration of resource nationalism in practice — has caused annoyance to China, the world’s biggest producer of steel and also by far the largest importer of ore. In this year’s first half, China raised year-on-year imports of iron ore by 5.1% to 384.29mt at a value of $51.2bn. The average price of ore imports was $133.2 a tonne, down $6.3 a tonne. The country’s ore imports last year amounted to 743.55mt when its steel production was up 3.1% to 716.5mt giving it a hefty share of 46.3% of world output. Unfortunately, India, because of its warped position on ore exports has failed to take advantage of growing Chinese demand. India’s commerce ministry data show that the value of the country’s ore exports to China was down sharply from $9.1bn in 2010/11 to $1.7bn in 2012-13. No wonder, India’s trade deficit with China has widened to an alarmingly high level of $40.77bn in 2012/13.

In its pursuit to reduce its import dependence on the three major mining groups — namely, Anglo Australian Rio Tinto and BHP Billiton and Brazilian Vale — China adopted a three- pronged strategy. First, in spite of its low quality ore and high cost of its mining and preparation for use, it went on raising domestic production. The cost factor now has forced China to put a caveat that mines below a certain size will be progressively decommissioned. Earlier, the Chinese target was to produce 760mt of finished ore out of a total excavated amount of 1.5bn tonnes in 2015. Second, China remains on the prowl to buy iron ore assets in all continents with particular focus on Africa and also acquire equity stakes in mines ventures in Australia and elsewhere with provision of imports in line with ownership level. Third, where India has proved to be a disappointment, China is proactively trying to build procurement centres away from the mining triumvirate which control close to 60% of global seaborne trade in iron ore.

In the meantime, a debate raging in India is about choosing the ideal route for allocation of mineral deposits, coal and iron ore in particular, to aspirant groups. Since the country has been rocked more than once in recent times over ministers and officials not playing fair in allocation of deposits, opinion is gaining ground that in auctions are to be found the antidote to corruption. Daga has joined the debate with some incontrovertible arguments against deposits auction. “I have reservations about auctions since these are to lead to concentration of deposits in a few hands creating ground for cartelization. Be sure, if some extraordinarily rich groups corner resources by paying top dollar without a good idea of the size, quality and mineralogy of deposits, they will from the very start selectively take out the best grades of iron ore from mines without care for lower quality mineral for a quick recovery of their investments. Why should there be concerns about first- come-first-serve system of mines allocations if rules are well laid out, governance is proper and authorities are denied discretionary powers?” argues Daga. In any case, the two countries Uzbekistan and Kyrgyzstan which tried resources allocation through auctions have reasons to regret the decision.

Brazil’s Vale expands output in bid to reclaim share of world trade 

Vale seeks to regain share of world ore trade lost in recent years by increasing output from 320mt (million tonnes) to 450mt in next five years, in an unstable market, writes Patrick Knight.

Predicting the future of the iron ore market has rarely been as difficult as it is this year.

On the supply side, the fast growth of recent years in demand from China, now the destination of about 70% of the ore traded worldwide — and more than half of that shipped from Brazil — encouraged most of the world’s largest mining companies and numerous newcomers to embark on major expansions.

If all the projects were completed as planned, more than 300mt would be added to output by just the four leading companies in the next two or three years, 100mt of that from mines in Brazil alone.

On the demand side, concerned with getting the runaway economy under control, by curbing the growing threat of inflation and avoiding a financial crisis, the Chinese authorities are taking steps to discipline leading industries.

Most notable of these is steel, where capacity at the hundreds of mills, most state-owned and very high cost, exceeds demand by at least 25%.

The Chinese economy is expected to grow by little more than 7.5% this year far from the heady 9–10% of some years. Work on building the infrastructure has been cut back and efforts made to curb speculative house building, the leading user of steel. In such a situation of flux, it is not surprising that the price of iron ore has fluctuated wildly. It has ranged from the low of $86 per tonne late last year, below the cost of production at numerous mines, not least many in China itself and the $160 per tonne of early this year, when companies rushed to rebuild depleted stocks. 

The price settled at about $120 per tonne in June this year, but many analysts suggest it will fall again as the year progresses and could average little more than $85 a tonne during 2014.

Vale, which produced about 320mt of ore in 2012, when it was the world’s largest producing company, continues to forge ahead with expansions.

Vale needs to add substantial new capacity if it is to maintain its traditional share of the world ore market, particularly in Asia, which the company has lost to competitors in the past few years. Output at its mines in Minas Gerais and Para states has remained unaltered at about 300mt since 2006, while that of companies in Australia has forged ahead.

Vale chief executive Murilo Ferreira notes that if demand were to increase by a modest annual rate of about 3%, half that of recent years, an extra 40mt would be needed each year to keep pace.

In addition to that, about 50mt will be needed to replace output from high cost mines which cease operations when the ore price falls below $100 per tonne.

About 40mt is to be added to output at the 25 year old Serra Norte mine at Vale’s large Carajas complex in the state of Para, taking output there to 120mt by the end of 2014.

Now that permission has been granted to start on the mine workings at the brand new Serra Sul project in the Carajas complex, an additional 90mt will be added to Vale’s total production from 2018. The new mine will be ‘truck-free’ with ore taken from workings to processing plants along a 150km network of conveyor belts.

In addition to much more being produced at the Carajas project, where total output will rise from the 100mt of the past few years, to more than 230mt by 2017/18, advances in processing technology will allow Vale to make use of the some of the huge stock of lower grade ores which have been put on one side in many of its mines in Minas Gerais state during the past 20–30 years.

About $6 billion dollars is being spent in installing new processing equipment able to upgrade ore with an iron content of 40–50%, far below the normal 66% plus of most Vale ores. This ore will be improved sufficiently to allow it to compete with the higher grade ores from Carajas and Vale’s other mines in Minas Gerais.

Vale expects to be producing a total of about 450mt of ore by 2018 at the two mining complexes, where ore can be produced for $35–50 a tonne.

The fact that Brazilian ports are 45 days’ sailing time from China, now the destination of more than 50% of the ore shipped from Brazil, compared with the 10% of the total which went to China just 12 years ago, is a major handicap. Its leading competitor, Australia, is much nearer.

On the positive side, the Chinese authorities have now scrapped the ban on the thirty-five 400,000-tonne capacity Valemax ships, designed specially for the Chinese trade, but previously forbidden to moor and unload at ports in China.

The first ore from the new mine being developed by the Anglo American company in Minas Gerais, which will travel from the mine to the port of Acu in slurry form along a 522km pipeline, the longest such line in the world, is due to be loaded in late 2014.

The Anglo American mine should produce about 26.5mt of ore a year initially, output rising to 90mt a year at a later stage. Again most of this ore will go to China and elsewhere in Asia.

Until a decade ago, countries in Europe bought about 40% of all the ore shipped from Brazil. These days, less than 20% of the total shipped goes to countries such as Germany, Italy, the Netherlands, Spain, the United Kingdom and France. With the economies of most countries in Europe growing little, if at all, this situation is unlikely to change soon.

Anglo-American is now looking for a partner to take a substantial share in its new mine, which together with the pipeline and new port, is expected to cost at least nine billion dollars to build. At least 1,500 way leave permissions had to be negotiated with landowners on the route of the pipeline. As a result, the mine will eventually cost five times the original estimate of $2.2 billion dollars.

Despite the high cost of Anglo’s mine, it will certainly go ahead. But there are doubts about the future of a mine also planned for Minas Gerais by the increasingly troubled MMX group, the value of whose shares has collapsed in recent weeks.

The MMX group is controlled by Eike Batista, son of a Vale chief executive of two decades ago.

It is reported that Glencore is the most serious contender for MMX assets, although the Dutch-owned Trafigura group also seems to be interested. A mine planned for Bahia state by a company from Kazakstan, is also now in doubt. The soaring cost of labour, land, transport and all other inputs in Brazil, means that to install a tonne of capacity by an industry there now costs virtually three times as much as it did 12 years ago. The sharp rise in costs has greatly reduced the profitability, and sometimes even competitiveness of Brazilian dry commodities such as ore and pulp.

Brazil still has a competitive edge in countries in the Middle East which have taken advantage of the fact that energy is extremely cheap there and as an insurance against the day when their reserves of oil decline, to build new steel-making capacity.

A decade ago, 70% of the ore used by Brazil’s own 35mt a year capacity steel industry, came from mines owned by Vale. But with the company’s output stagnant and foreign markets steadily more attractive than selling in Brazil, that share has now fallen to about 40% of the total used.

All Brazil’s leading steel companies, led by the National Steel Company, CSN, but also including Usiminas and Arcelor Mittal, soon to be joined by Gerdau, have sought to become self sufficient in ore to cut costs.

It remains to be seen whether Vale will win back the customers it has lost in Brazil, once its output has increased and it has some spare ore, as chief executive Mr Ferreira hopes.

CSN aims to become a major exporter, but is not finding this easy. A fall in output at its large Casa da Pedra mine, forced the company to buy some of the ore it had contracted to export from other smaller miners.

Although the recent fall in the ore prices may at first sight appear bad news, very few mines are able to deliver a tonne of ore for less than $100–120. So when prices fall below that level, numerous mines in many countries cease operating when that happens, not least many in China.

This opens the way for the larger, lower cost mines such as those of Vale and the companies with mines in Australia, to fill the gap.

A tonne of ore can be produced for less than $50 at most mines in Brazil. And even though it may cost considerably more than that to get the ore from a mine to a port in Brazil, get it loaded onto a ship and taken to its destination in Asia, Europe or the Middle East, the final delivered cost can still be less than $100 per tonne. Few competitors can match this.

So even though the mining companies are not now so profitable as they were a couple of years ago, and have ceased to be the darlings of investors, most of the largest half a dozen are still profitable enough to bear the cost of the huge amounts opening a new mine and the associated infrastructure.

In the past few years, an average of about 100mt of ore was shipped each year from mines in India. Because India is relatively close to China, its ore provided serious competition for ore from Brazil and Australia as well.


But increasing amounts of ore will be needed by India’s own fast growing steel industry. So the government there has taken steps to limit ore exports.

Not only have exports virtually ceased, 400.000 tonnes of ore were exported by Brazilian companies to India last year.

During the years expansionist Roger Agnelli was chief executive of the Vale company, a period when the price of a tonne of ore rose from little more than $20, to more than $100, and with the encouragement of the Brazilian government, which holds a golden share in the company, prohibiting its sale to a foreign company,Vale embarked on a series of projects and investments in numerous countries most outside its core business.

Amongst investments were coal mines in Colombia and Mozambique, fertilizer projects in Canada and Argentina as well as in Brazil itself, interests in pig iron and steel products, products in the aluminium complex and power stations.

Following the selection of long term Vale employee, the more cautious Murilo Ferreira as president of the company,Vale has either sold, or reduced investments in many of these projects, with priority now being given to its core business once more.

The Brazilian congress is soon to consider a new mining code, in which it is proposed that royalties are to be increased by an average of about 50%, from the 2% per tonne, to about 4%. This modest increase has come as a relief to mining companies, who point out that Brazilian ore already suffers from the disadvantage of being further from most customers than that of its leading competitors. It is also planned for the time between planning permission to develop a new mine and the decision to go ahead, will be much shorter in future.