VALE, RIO, and BHP can swing the global iron ore prices

With over 65% exports going to China, China is the real swinger in global iron ore prices. A slowdown in China caused panic among all major commodity exporters.

Mike Sonnenberg - Author

Dec. 18 2014, Updated 11:19 a.m. ET

uploads///part  iron ore market share

Iron ore industry

Like met coal, iron ore is also used in steel production. If the seaborne met coal industry (KOL) is concentrated, the iron ore market is even more concentrated. Australia and Brazil control ~80% of the seaborne market. The concentration is visible even on the demand side. China accounts for over 65% of the world’s iron ore imports. While China is the biggest iron ore producer, it’s also the largest iron ore consumer and importer.

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Major exporters

Vale S.A. (VALE), Rio Tinto (RIO), and BHP Billiton (BHP) are the top iron ore producers and exporters in the world—excluding China. In 2013, these three players accounted for over 58% of the global seaborne iron ore market. In 2013, seaborne iron ore trade was 1.2 billion tons. In Brazil, VALE exported 311 million tons of iron ore—or 26% of seaborne trade. RIO exported 209 million tons of iron ore—or 17% of seaborne trade. BHP exported 186 million tons of iron ore—or 15% of seaborne trade.

The SPDR S&P Metals and Mining ETF (XME) invests in mining companies.

Swing players

With over 65% exports—or 780 million tons—going to China, China is the real swinger in the global iron ore prices. A slowdown in China caused panic among all major commodity exporters—including iron ore exporters.

China can drive demand for iron ore. VALE, RIO, and BHP are the swingers on the supply side. Since they control 55% of the seaborne market, they can help the iron ore prices by making active decisions to cut production.

In the next part of this series, we’ll discuss the supply situation in the seaborne iron ore market.


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