The Week in Mining

Iron Ore continues to dominate because of its status as the highest volume, bulk-traded mineral, all 2000Mt of it and the realisation on both sides, that its price-fixing mechanism is on life support. Annual contracts are serving the interest of neither producer nor consumer. The present spot market is beginning to have a voice but is no substitute. We need an exchange-traded mechanism and there is no real barrier to it. Iron ore is a fairly simple commodity to define. It is all about % Fe (typically 62-65% for shipping), impurities and fob point. If we get to it we shall see much less volatility in both metal and share prices. But do we hear it for monopolies or near? Geographically, South America and Australia dominate production whilst China, India and other Asians grip the import market. Yet Africa is throwing up huge potential resources adding to a continuing readjustment of the global picture. 

Production: Ten companies control over 50% of output. Of these, three (Rio Tinto, Vale SA and BHPB) have 35%. Four countries – Brazil, China, Australia and India – produce 72%. This is a game for deep pockets. Consumers (come-in, China and India) will increasingly take a financing hand in return for guarantees of supply. Still on iron ore, the Australian authorities are rightly nervous about the proposed Rio-BHPB tie-up on the Pilbara field. It would make a lot of economic sense but the smell of price and supply collusion wafts across. The companies must submit their proposals to the competition watchdog by April 14.

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