Mining & Resources

With the iron ore price falling, is it time for the industry to consolidate?

This is part 2 of our question and answer session with CRU & Wood Mackenzie. To read part 1 please click here.

The iron ore price continues to drop with many companies stripping costs in a bid to weather the storm. In the lead up to Perth’s premier iron ore event, the Global Iron Ore & Steel Forecast next month, we had the opportunity to speak with CRU and Wood Mackenzie about what they thought the falling price meant for consolidation in the industry.

Wood Mackenzie’s Andrew Hodge:

Yes, we forecast a more concentrated industry structure over the medium/long term. So far few buyers have emerged for distressed assets so we may just see rationalisation without consolidation but that will lead to greater concentration assuming the closures are permanent.

Iron

“The price is falling because the industry is consolidating as the majors’ low cost production is expanding”

How will the iron ore industry change and develop from the current surplus market?

Excess supply capability will remain a feature of the market for at least the next 3 years, based on expansions by the majors that will continue almost regardless of price! Post 2020 supply/demand should be more closely aligned with a tendency towards “notional shortage” and a need to develop mines/expansions not currently included in our base case. But the timing of this transition all depends on China! Specifically the growth rate for Chinese hot metal production. We assume medium term (5yr) growth rate of approx. 2% pa – if its lower than that then the “surplus” or excess supply capability will persist for longer!

CRU Analysis:

The price is falling because the industry is consolidating as the majors’ low cost production is expanding. For now, there are rare cases of companies trying to merge to find synergies, for example London Mining and African Minerals. Further M&A activity and opportunities for JVs are likely for next year, as we have seen in the metallurgical coal sector.

Hear from both companies in greater detail at the Global Iron Ore & Steel Forecast Conference & Exhibition next month.

The largest gathering of senior iron ore representatives

The largest gathering of senior iron ore representatives

One thought on “With the iron ore price falling, is it time for the industry to consolidate?

  1. Africa is a sleeping giant. One day they will realise that waving a gun above their heads and killing people is not the way to live and they will find jobs and prosperity. One of the jobs will be mineral export and Iron will be on top of the list. A price war will do no one any good and they will win.
    I have a theory about climate change that involves moving so much of the earths crust (iron ore) that the balance of the planet is changed and the Northern Hemisphere stays longer in the cold away from the sun and the Southern Hemisphere heats up.
    The real solution involves refining the ore before export and that way have a reduced effect on the balance of the planet. Mining is speeding up the effects of Tectonic Movement. Africa as a young nation will never bend to this. Within 20 years ISIS will take control of AFRICA and create its own country. This will be good for trade but not the world generally, at least there will be peace at last for the Middle East and North Africa.
    Raping this country and selling it down until there is a big hole is not the solution to the worlds problems. Foreword thinking is needed and rationality not greed will find a way through. The worlds energy requirements must be met with uranium until we find a better source, and recycling iron must be a top priority.

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