CAPE TOWN - Despite soft Chinese consumption and low prices for most of the year, a late sudden powerful forward meant the iron ore industry gains in production and exports.
According to the new United Nations Conference on Trade And Industry (UNCTAD) Iron Ore Market Report, the iron ore industry saw a market improvement last year after slower growth, lower prices and squeezed profit margins suffered in 2015.
The report shows that the key indicators of demand and supply, seaborne trade and price, all made gains through the year and says the market oulook is steady.
Chief of UNCTAD's Commodity Policy Implementation and Outreach Section, Ms Yanchun Zhang said: "The market for base metals such as iron ore is a yardstick for the global economy, and in recent years it has fluctuated closely with the state of emerging and developing countries economies."
"The report's comprehensive analysis of the global iron ore market will be useful for both professionals interested in the iron ore market but also for developing economies with huge needs to import the metal for domestic industrial production."
Although Chinese consumption has remained relatively low and prices did not improve for much of 2016, the market started to improve late in the year, with prices exceeding US$80/dry metric ton (dmt) in December last year.
Global iron ore production grew by 5 percent year-on-year in 2016, according to the report, hitting a total of 2,106 million tons (Mt). This was mostly driven by an additional 30 Mt of direct shipping ore from Australia, which was the major source of new fine-products entering the Chinese market.
Compared with under 1,439 Mt in 2015, iron ore exports exceeded 1,513 Mt in 2016 and the seaborne market was more or less balanced. Led by Australia was the net increase in global trade, which contributed 44 Mt of incremental seaborne supply. The predominant products that entered the market were Pilbara blend fines and Carajas fines.
Producers of iron ore have reduced mining costs substantially over the past four years, says the report, and the mining industry as a whole now spends US$22/dmt less than it did in 2013 due to tightened capital controls, renegotiated contracts and the exit of high cost supply. The production-weighted average cost for the seaborne market was only US$34/dmt in 2016, and the lowest cost producer achieved US$23/dmt.
However, iron ore exploration budgets fell in 2016 for the fourth consecutive year, with the estimated US$685 million expenditure representing a decline of US$460 million from 2015.
Most of the fall can be attributed to Australia and China, who together accounted for almost half of the global decline. The annual exploration budget for iron is now down by 83 percent from the peak of US$3.98 billion in 2012.