Iron Ore Demand to Grow, But Future Outlook Problematic
Iron Ore Demand to Grow, But Future Outlook Problematic

Iron Ore Demand to Grow, But Future Outlook Problematic

Iron Ore Demand to Grow, But Future Outlook Problematic

Once again, it is good times for the iron ore miners: global steel production through February 2017 is up 5.8% over last year, prices remain buoyant, and counter-intuitively, China continues to make progress in reducing iron and steelmaking capacity, said an industry expert.
 China’s progress is positive for both iron ore pricing and for global miners because the capacity being shuttered tends to be the smaller, inland furnaces, which use a higher percentage of domestic ores compared to the newer, coastal steel plants, added John Lichtenstein, managing director for Accenture Strategy and the global lead of Accenture’s metals group, TradeArabia reported.
The positive global production and capacity reduction trends should continue in the short term, providing pricing support for iron ore, although the very recent softening in domestic Chinese steel prices likely portends downward pricing pressures.
Longer-term outlook is even more problematic, at least in terms of demand. Based on Accenture’s latest research, global iron ore demand is expected to grow until approximately the middle of the next decade, at which point it will peak at a little more than 2.2 billion tons compared to approximately 2.0 billion tons in 2016.
Lichtenstein notes: Global steel demand growth is slowing. “We are likely to see near-term cyclical recovery translating into decent growth, yet our research suggests that global consumption will grow at only 1.1% per year until 2035,” said Lichtenstein.
Contributing factors include expansion of the circular economy, changing consumer preferences, premature de-industrialization in developing economies, and accelerating material and process substitution.
Increased carbon emissions costs will drive an increase in electric furnace steelmaking. With the notable exception of the United States, most countries and regions are expanding their efforts to limit carbon emissions and are targeting large industrial emitters such as steelmaking. The likelihood that hydrogen-based steelmaking will not be commercially available in the next 20 years means that conversion from basic oxygen-based to electric arc furnace (EAF)-based steelmaking will remain the primary technology lever that the industry can use to respond.

  China the Wild Card
A growing surplus of scrap in China will support the growth of EAF steelmaking. This surplus, combined with a heightened natural concern for air quality, is expected to lead to an increase in the EAF share of Chinese steelmaking—from 6% today to at least 10% and as high as 20% by 2035.
Even if the EAF share in China reaches 20%, our research suggests that there will still be sufficient excess scrap available through exports to keep the rest of the world in balance. It is likely that excess domestic scrap supply will, in the first instance, be used to reduce hot metal ratios in oxygen furnaces, yet the implications for iron ore demand are similar.
While total global demand for iron ore is expected to peak around 2025, the decline in the ensuing decade will likely be gradual. This is, in part, because the average EAF iron charge in all forms is expected to increase as the share of flat-roll production increases; and, it is also a result of greater EAF output from direct reduced iron-based production units (i.e., the Middle East(.
“Even while we expect faster growth in EAF output, global blast furnace-based production should increase over the next decade as India and South East Asian countries increase their output. These increases will more than offset the expected decline in Chinese blast-furnace production until the middle of the next decade,” said Lichtenstein.

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