David Hargreaves on Iron Ore Week 19 2012

Iron ore, as ever, grabs the news. The increasingly important spot price fell this week, to $144/t down $4 in two weeks. Fears are of lower offtake from China as it enters a less steel-intensive growth phase. The World Steel Association is forecasting consumption growth in 2012 of “only” 3.6%, from 5.6% in 2011. That is still an extra 90Mt of iron ore, or the combined outputs of Canada and South Africa. Yet this must be matched against growth ambitions of the miners. Long term expansion plans, all of them highly CAPEX demanding, are underway in well rooted homes Brazil, Australia and South Africa. China dominates imports with 59% of world demand at c. 650Mt/yr despite being the largest producer. So it is looking abroad. West Africa – Sierra Leone, Liberia, Guinea – are hotspots but Canada is again rising.

Its major concentration is in the Labrador Trough. An unforgiving tract of land stretching to the Arctic Circle. It first produced iron ore in the 1950’s and is making a comeback, using much of the remaining infrastructure including the vital rail links from the deepwater port of Sept-lles to the mines. The Chinese have found out where it is. Their initial foray is via steel giant Hebei Iron and Steel and a Canadian junior Alderan Iron Ore (TSX: ADV), in which Hebei has taken a 19.9% interest. Already well established in Labrador is Labrador Iron Mines: (TSX: LIM) in which the UK’s Anglesey Mining has a 28% stake. Analysts speak of Canada’s iron ore production rising from 41Mt in 2011 to 72Mt in 2012. Health warning: in Labrador and northern Quebec you get 9 months winter when 70 below is not uncommon. So you pray for summer. In that short window you get 90° above and if the mosquitoes don’t get you, the black flies will.

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About David Hargreaves

David Hargreaves

David Hargreaves is a mining engineer with over forty years of senior experience in the industry. After qualifying in coal mining he worked in the iron ore mines of Quebec and Northwest Ontario before diversifying into other bulk minerals including bauxite. He was Head of Research for stockbrokers James Capel in London from 1974 to 1977 and voted Mining Analyst of the year on three successive occasions.

Since forming his own metals broking and research company in 1977, he has successfully promoted and been a director of several public companies. He currently writes “The Week in Mining”, an incisive review of world mining events, for stockbrokers WH Ireland. David’s research pays particular attention to steel via the iron ore and coal supply industries. He is a Chartered Mining Engineer, Fellow of the Geological Society and the Institute of Mining, Minerals and Materials, and a Member of the Royal Institution. His textbook, “The World Index of Resources and Population” accurately predicted the exponential rise in demand for steel industry products.