Investing in Iron

Iron is the world's most commonly used metal. Almost all iron ore is used to make steel.

Domestic Production and Use: In 2009, mines in Michigan and Minnesota shipped 99% of the usable ore produced in the United States, with an estimated value of $2.0 billion. Twelve iron ore mines (11 open pits and 1 dredging operation), 8 concentration plants, and 8 pelletizing plants operated during the year. Almost all ore was concentrated before shipment. Eight of the mines operated by three companies accounted for virtually all of the production. The United States was estimated to have produced and consumed 1% of the world’s iron ore output.

Import Sources (2005-08): Canada, 58%; Brazil, 34%; Chile, 2%; Trinidad and Tobago, 2%; and other, 4%.

Events, Trends, and Issues: Following an almost 10% increase in worldwide price for lump and fines and a 5% increase in price for pellets in 2007, the 2008 iron ore price showed an even steeper increase of greater than 65% for lump and fines and almost 87% for pellets from the Americas. In 2008, Australian producers received an additional premium for shorter transport distances into the Asian market with an almost 80% increase in price for fines and an increase of greater than 96% for lump ores. In 2009, prices corrected following several years of continued increase. Lump and fines decreased in price by 28% and the price of pellets was almost halved.

Major iron-ore-mining companies continue to reinvest profits in mine development, but increases in capacity may outstrip expected consumption within the next few years, as growth dominated by China slows. In 2008, it was estimated that China increased production of mostly lower grade ores by 17% from that of the previous year—significantly lower than the 40% increase seen between 2005 and 2006. Estimates of Chinese imports of higher grade ores in 2008, mostly from Australia and Brazil, showed an increase of about 16% compared with those of 2007.

In early 2009, China’s state-run aluminum company attempted to purchase 18% ownership of Rio Tinto plc. Following the breakdown of this $19.5 billion deal, a nonbinding agreement was signed between BHP Billiton Ltd. and Rio Tinto. This joint venture, combining these companies’ Western Australian iron ore properties, would represent a major collaboration within the global iron ore industry.

In 2008, China imported one-half of the world’s total iron ore exports and produced about one-half of the world’s pig iron. Since international iron ore trade and production of iron ore and pig iron are key indicators of iron ore consumption, this clearly shows that iron ore consumption in China is the major factor upon which the expansion of the international iron ore industry depends. China continued to actively invest in overseas ventures in Africa, Australia, and South America in order to provide raw materials for its growing urbanization. Earlier interest in importation of North American ores by China has decreased somewhat, as exemplified by the sale of its minority interest in one North American operation. Subsequently, investigation and development, by companies seeking sales to China, of several lower grade iron ore deposits in Alaska, Arizona, Missouri, Nevada, New Mexico, and Utah, has slowed. The Mesabi Nugget project—a direct-reduced iron nugget plant—was completed in Minnesota in the fourth quarter of 2009. The $260 million plant produces 96%-to-98% iron-content nuggets. After receiving necessary permits, an adjacent iron ore mine was planned to be reopened in late 2010.

World Resources: United States resources are estimated to be about 110 billion tons of ore containing 27 billion tons of iron. U.S. resources are mainly low-grade taconite-type ores from the Lake Superior district that require beneficiation and agglomeration prior to commercial use. World resources are estimated to exceed 800 billion tons of crude ore containing more than 230 billion tons of iron.

Substitutes: Iron ore, used directly, as lump ore, or converted to briquettes, concentrates, pellets, or sinter, is the only source of primary iron. Ferrous scrap may constitute as much as 7% of the blast furnace feedstock at some blast furnace operations. Scrap is extensively used in steelmaking in electric arc furnaces and in iron and steel foundries, but scrap availability can be an issue in any given year. In general, large price increases for lump and fine iron ores and iron ore pellets through the last quarter of 2008 were offset by price increases in the alternative—scrap. The margin between iron ore and scrap import prices has greatly decreased since then; therefore, the relative attractiveness of scrap compared to iron ore has increased markedly.

Advanced Explorations (CVE: AXI)
BHP Billiton (NYSE: BHP) - Australia's mining giant specializes in base metals.
China Direct Industries
Fortescue Metals Group (ASX: FMG)
Freeport McMoran (NYSE: FCX) - With their acquisition of Phelps Dodge, this company became a major player in the iron industry.
Rio Tinto (NYSE: RTP) -
Talon Metals
Vale (NYSE: VALE) - Vale is the world's largest producer of iron ore. With their acquisition of Inco, they also became one of the leading producers of nickel.

Iron News
2011-07-08 - (mw) - SA iron-ore mining presents exciting growth opportunities
2011-07-06 - (ft) - Iron ore to stay above $150, says Vale
2011-07-05 - (nas) - Iron ore supply will continue to dissapoint - Macquarie
2011-07-04 - (wsj) - Murchison says iron ore project costs soar
2011-06-30 - (reu) - Outotec to deliver the world's largest iron ore pelletizing plant in Brazil
2011-06-28 - (mw) - Rio iron ore demand strong despite China doubts
2011-06-27 - (bl) - Vale cuts 2015 iron-ore output target amid China demand
2011-06-24 - (upi) - Controversy mars Uruguay iron ore project
2011-06-23 - (reu) - Sinosteel suspends $2 bln iron ore project in Australia
2011-06-23 - (smh) - Rio Tinto cuts iron ore price: sources
2011-06-22 - (bl) - Vale says largest-ever iron-ore ships can enter three Chinese ports
2011-06-21 - (smh - Hot stock
2011-06-16 - (pla) - Zamin sells Brazil iron ore to China, updates Uruguay project
2011-06-08 - (bl) - Essar, Mozambique agree to build 20 million-ton iron ore terminal at Beira

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