SÃO PAULO Vale SA does not believe iron ore prices will be significantly affected by new output capacity over the next few years as ore depletion and growth in Chinese steel production will continue to balance the market.
Every year the global steel market needs "at least 100 million tonnes" of added iron ore output, José Carlos Martins, executive director for iron ore and strategy at Vale, said during a conference call for analysts. Some 50 million to 60 million tonnes of new iron ore production is necessary each year just to replace output that is lost globally by ore depletion.
"Ore depletion depends on (iron ore) prices: when prices are high, depletion decreases, and when price goes down, depletion increases," Martins said.
Depletion falls when iron ore prices rise because idled mines, which produced material with a lower iron content, are put back into operation, thus increasing total iron ore production. As soon as prices start to decrease, such costlier mines have to shut again.
Martins estimated that 3 to 5 percent of the worlds iron ore production decreases are due to ore depletion.
Meanwhile, growth in steel production, especially in China, requires 60 million to 70 million tonnes of added iron ore output per year.
"In the past few years there has been a level of $130 per tonne as an annual average," Martins said. "Its possible that there will be some reduction due to the entrance of new projects, (but) I dont believe prices will fall in a sustainable way over the next few years below the levels of $100 to $110 per tonne."
A version of this article was first pubished by AMM sister publication Steel First.