Global iron ore demand is set to double to some 3.5bn tonnes per year by 2030, according to research by mineral economists and analysts at Raw Materials Group. Chinese appetite continues to drive the market, albeit at a slower pace than during the last decade, and this is likely to continue driving direct investments overseas while Indian domestic demand is also expected to support the wider market.
Analysts expect that Indian iron ore exports may actually decline as a result of the "formidable growth" planned by domestic steel companies. Meanwhile, the researchers found that the Chinese continue to face hurdles in their quest to secure control of 50 per cent of iron ore imports, with foreign direct investments in Africa and elsewhere proving more difficult than anticipated.
One deal that illustrates these difficulties is Shandong Iron & Steel's $1.5bn (£940m) investment in the Tonkolili iron ore project being developed by African Minerals in Sierra Leone. The proposed investment was announced in mid-2010 but has only just completed. Under its terms, Shandong is acquiring a 25 per cent shareholding in the mine, rail, port and power subsidiaries of the Tonkolili project, together with discounted supply for the life of the mine. African Minerals will use the funds to refinance and accelerate expansion of the project.
Tonkolili heads a group of mega-sized iron ore projects in Africa. Its resource of 12.8bn tonnes supports a mine life of over 60 years and the project has a workforce of around 9,700. Initial production of 20m tonnes a year will be expanded to 50m in phase two.
One of the reasons miners have been developing such huge projects is that most ore is relatively low-grade magnetite. But projects of such scale require massive investment in capital to build roads, railways, ports and handling facilities. This often requires major - often Chinese - investment, but as the Shandong deal demonstrates, this can mean a very lengthy process.
A growing trend by miners wishing to avoid such large capital and time commitments is to look for smaller projects close to existing infrastructure that contain higher-grade 'direct shipping ore'. This can be sold without processing, which greatly saves capital costs and offers much earlier cash flow.
