Iron Ore

What is Iron Ore?

Iron ore is used to make pig iron, which is one of the key raw materials used to make steel. It is used primarily in structural engineering applications and in maritime purposes, automobiles, and general industrial applications.

98% of the mined iron ore is used to make steel.

It has been argued that iron ore is “more integral to the global economy than any other commodity, except perhaps oil”.

image leftAlthough iron is the fourth most abundant element in the Earth’s crust, the vast majority is bound in silicate or carbonate minerals. Separating pure iron from these minerals is prohibitively energy intensive; therefore industrial sources of iron exploit comparatively rarer iron oxide minerals.

The major constraint to economics for iron ore deposits is the position of the iron ore relative to market, the cost of rail infrastructure to get it to market and the energy cost required to do so.

Mining iron ore is a high volume low margin business, as the value of iron is significantly lower than base metals.

Traditionally, iron ore prices have been decided in closed-door negotiations between the small handful of miners and steelmakers which dominate both spot and contract markets. The first deal reached between these two groups sets a benchmark to be followed by the rest of the industry.

This benchmark system is breaking down, with participants along both demand and supply chains calling for a shift to shorter term pricing. Given that most other commodities already have a mature market-based pricing system, it is natural for iron ore to follow suit.

World production averages two billion metric tons of raw ore annually.

World consumption of iron ore grows about 10% a year, with the main consumer and importer being China.