Iron ore outlook – presentation

by: Casper Burgering

ABN AMRO presentation at the Iron Ore Week in Singapore

On the 7th of May 2013 ABN AMRO was present at the Singapore Iron Ore Week and presented their outlook on iron ore.
On the 7th of May 2013 ABN AMRO was present at the Singapore Iron Ore Week and presented their outlook on iron ore.

The market conditions in iron ore – a mineral used for steelmaking – have deteriorated alongside with the strong decline in steel output during 2009 and further. Until now, conditions are still weak and recovery in ferrous markets has turned out to be very slow.

The recovery we have witnessed so far, can entirely be attributed to China. Although the increase in Chinese steel demand has been slow since the financial crisis, the pace of growth since 2010 has been stronger then other regions (such as the US and Europe). But with a slower pace of growth, demand for iron ore also weakened and so did price. World iron ore markets still showed some growth after the financial crisis, but output and demand did not reach growth levels as seen before 2008.

Australia and Brazil continue to dominate iron ore production. These countries are important suppliers of iron ore globally and especially to world’s biggest iorn ore consuming country: China.

Economic risks & opportunities around the globe (dd 7th May 2013)
Economic risks & opportunities around the globe (dd 7th May 2013)

In this presentation, ABN AMRO provides an insight into the international iron ore market and presents their long term view on developments and trends. We start the presentation with the ABN AMRO macro-economic view and forecasts for major economies. We can conclude from these views that emerging Asia will continue its growth path. ABN AMRO expects a modest improvement in 2013 and a somewhat stronger contribution from exports in 2014. This is on the back of an improved outlook for China and a general acceleration of growth in the global economy. Average world GDP growth in 2013 will be 3.2%, while in 2014 average world GDP growth will be 3.9%. Furthermore, the transformation of emerging economies will continue and for further development, these countries need various bulk commodities for its growing urban areas and population.

Current iron ore trade flow. Trade flows have changed significantly over time and currently the emphasis is on pacific trade.
Current iron ore trade flow. Trade flows have changed significantly over time and currently the emphasis is on pacific trade.

We expect that China will continue to dominate international iron ore markets. From the Supply and Demand balance we can see that the share of China in both production and consumption of metals is very high. On the demand-side it has 40%-plus share in almost all metal markets, while in production of copper, nickel and iron ore it has a relative low market share. According to the Raw Materials Group, Australia and Brazil will be the dominating forces in iron ore output for years to come. India also has vast resources, but India will be hampered by internal struggles and will retreat from the international market. Over time, it is expected that its resources of iron ore will mainly be used domestically, as the Indian steel industry is expected to grow further. The Raw Materials Group also foresees a further decline in Chinese iron ore output.

Going forward, we expect iron ore supply to increase further, while demand conditions will enter a phase of lower growth. Demand for steel is weak in most parts of the world, leading to a gap between production levels and consumption levels. This will have an effect on demand levels for iron ore. We expect iron ore markets to be oversupplied for the next few years, which will have a downward effect on price. However, China will remain dependent of sourcing high quality of iron ore externally for many years, which will provide a solid base for iron ore demand.