Western Australia Iron Ore Profile June 2018 THE WORLD IRON ORE MARKET Major global iron ore producers: 2017 Western Australia is the largest iron ore producer and exporter in the world, Western Australia accounting for 38% of global production Brazil and 57% of global seaborne exports in 2017. China Brazil is the second largest iron ore India producer and exporter in the world, Russia accounting for 17% of global production South Africa and 24% of global seaborne exports in Ukraine 2017. China (13%), India (7%) and Russia (5%) Iran are major global iron ore producers, but Canada retain most of their production for USA domestic steel production. 0Mt 200Mt 400Mt 600Mt 800Mt 1000Mt China’s iron ore production has fallen for four successive years, from 483 million Exported Consumed domestically/stockpiled tonnes in 2013 to 281 million tonnes in Source: CRU, Iron Ore Market Outlook Statistical Review. 2017. It fell 5% in 2017. China’s iron ore demand 1200Mt China accounted for 72% of global iron ore seaborne imports and 51% of global 1000Mt crude steel production in 2017. China’s iron ore imports fell 2% to 800Mt 992 million tonnes in 2017. China’s crude steel production fell 1% to 600Mt 862 million tonnes in 2017. Around 1.4 tonnes of iron ore makes a tonne of crude 400Mt steel. CRU forecasts a fall in China’s iron ore 200Mt imports to 984 million tonnes in 2021. Japan and South Korea were the next 0Mt largest global iron ore importers in 2017, 2005 2008 2011 2014 2017 2020 although demand in these markets has Iron ore imports Crude steel production been relatively stable in recent times. Source: CRU, Iron Ore Market Outlook Statistical Review. Iron ore1 and steel product2 prices The rapid growth in China’s iron ore US$180/t 180 index demand led a rise in the iron ore price from US$28 a tonne in 1999-00 to US$160/t 160 index US$173 a tonne in 2007-08, and US$140/t 140 index averaged US$129 a tonne from 2008-09 to 2013-14. US$120/t 120 index The subsequent supply response, mainly US$100/t 100 index from Western Australia, and a slowdown US$80/t 80 index in China’s demand, saw the iron ore price fall 42% in 2014-15 and 28% in 2015-16. US$60/t 60 index The iron ore price rose 35% to US$70 a US$40/t 40 index tonne in 2016-17 as China’s demand for higher-grade ore rose. Steel product US$20/t 20 index prices in China rose 41% in 2016-17. US$0/t 0 index The iron ore price is forecast3 to be 1996-97 2001-02 2006-07 2011-12 2016-17 2021-22 US$62 a tonne in 2018-19. In the first Iron ore Steel product index eleven months of 2017-18, the iron ore price averaged US$70 a tonne. 1 Annual average China spot price in nominal US dollars, cost and freight (CFR). 2 Annual average China steel product price index. Source: World Bank, Commodity Markets; CEIC, China Premium Database; and 3 WA Government 2018-19 Budget, May 2018. In May 2018, the iron ore price rose 1% to US$66 a tonne and steel product prices fell 2%. WA Iron Ore Profile – June.2018 1 Western Australia Iron Ore Profile June 2018 WESTERN AUSTRALIA’S COMPETITIVENESS Estimated1 iron ore resources Western Australia has large iron ore 70Bt 120yrs reserves, accounting for 29% of the world’s crude iron ore reserves in 2017.2 60Bt 100yrs Western Australia had an estimated 57 50Bt billion tonnes of economic demonstrated 80yrs iron ore resource in 2016-17, which could 40Bt sustain current production for 67 years. 60yrs 30Bt Western Australia’s reserves had an average iron content of 48% in 2017, 40yrs 20Bt below the world average of 49% and Brazil’s 52%.2 10Bt 20yrs Western Australia’s iron ore production 0Bt 0yrs had an average iron content of 62% in 1996-97 2001-02 2006-07 2011-12 2016-17 2017, below the world average of 63% 2 Economic demonstrated resource (billion tonnes) and Brazil’s 64%. However, Western Australia’s iron ore has relatively low Resource life (years of production) impurities. 1 Based on Western Australia’s share of Australian iron ore production. 2 US Geological Survey Western Australia’s iron ore exploration Source: ABS 5204.0 Australian System of National Accounts. expenditure rose 1% to $280 million in 2017, compared with an annual average decline of 2% over the past ten years. Total cash cost1 of seaborne iron ore exports: 2017 Western Australia’s iron ore miners are South Africa US$24.3/t among the world’s lowest cost seaborne Brazil US$25.4/t iron ore exporters. 1 Venezuela US$27.1/t The average total cash cost of Western Australia’s iron ore exports was US$27.1 Western Australia US$27.1/t a tonne in 2017, below the world average Kazakhstan US$29.4/t of US$28.9 a tonne, although behind South Africa, Brazil and Venezuela. Sweden US$29.5/t Western Australia’s major iron ore ports Mauritania US$33.5/t are close to the largest iron ore markets in Peru US$36.0/t Asia, reducing shipping costs relative to some of its competitors. Russia US$36.2/t Western Australia’s average iron ore spot India US$37.7/t freight rate to China and Japan rose 31% US$0/t US$10/t US$20/t US$30/t US$40/t to US$6.2 a tonne in 2016-17, well below 1 Price normalised total cash cost in US dollars, cost and freight (CFR), whereby production costs for different iron ore products are adjusted to a Brazil’s rate of US$12.2 a tonne. benchmark product (62% Fe fines) based on price differentials. Source: S&P Global Market Intelligence, Mine Economics Model. Major iron ore export markets Western Australia’s iron ore industry has 800Mt established long-term trade relationships with major Asian steel makers and trading 700Mt companies. 600Mt Most of Western Australia’s iron ore exports went to China (83%) in 2017, 500Mt followed by Japan (8%), South Korea 400Mt (6%) and Taiwan (2%). 300Mt In 2017, Western Australia’s iron ore exports rose to China (up 4% to 679Mt), 200Mt but fell to Japan (down 9% to 66Mt), South Korea (down 4% to 49Mt) and 100Mt Taiwan (down 7% to 16Mt). 0Mt In 2017, Western Australia accounted for 1997 2002 2007 2012 2017 over half of the iron ore imported by China Japan South Korea Taiwan China (68%), Japan (54%), Source: ABS 5368.0 International Trade in Goods and Services. South Korea (71%) and Taiwan (67%). WA Iron Ore Profile – June.2018 2 Western Australia Iron Ore Profile June 2018 WESTERN AUSTRALIA’S SUPPLY Iron ore sales volumes 900Mt After years of strong growth, Western 800Mt Australia’s iron ore sales are slowing as recently completed projects ramp-up to full 700Mt production. 600Mt In 2016-17, Western Australia’s iron ore sales rose 6% to 790 million tonnes, 500Mt below annual average growth of 12% over 400Mt the past ten years. Iron ore sales were 259 million tonnes in 2006-07. 300Mt Western Australia’s annual iron ore sales are forecast1 to rise to 839 million tonnes 200Mt by 2021-22. 100Mt Western Australia produced mainly iron ore fines (73%) in 2017, followed by lump 0Mt (24%) and concentrate (2%). 2001-02 2006-07 2011-12 2016-17 2021-22 Source: Western Australian Department of Mines, Industry Regulation and Safety, Resource Data Files; and 1 WA Government 2018-19 Budget, May 2018. Major iron ore miners’ sales123 Western Australia’s major iron ore miners 350Mt Rio Tinto, BHP and Fortescue Metals Group (FMG) are the largest global iron 300Mt ore producers behind Vale from Brazil. Rio Tinto (360Mtpa) and BHP (290Mtpa) 250Mt are currently increasing mine production to utilise additional rail and port capacity 200Mt developed over recent years, and need to 150Mt develop new mines by 2021 to sustain production or reach production targets. 100Mt Rio Tinto’s iron ore sales rose 1% to 330Mt in 2017 and its sales guidance for 50Mt 2017-18 is 330-340Mt. 0Mt BHP’s iron ore sales rose 3% to 268Mt in 2009 2010 2011 2012 2013 2014 2015 2016 2017 2017 and its production guidance for 2017-18 is 272-274Mt. Rio Tinto BHP FMG FMG’s iron ore sales fell 2% to 169Mt in 1 Western Australian operations. 2 Wet tonnes. 3 Inclusive of third party tonnes. Source: Company production reports. 2017 and its sales guidance for 2017-18 is 170Mt. Major iron ore export ports Port Hedland is the world’s largest bulk export port, while Cape Lambert and Dampier are also major bulk export ports. Port Hedland Port Hedland (58%) exported most of Western Australia’s iron ore in 2017, followed by Cape Lambert (22%), Cape Lambert Dampier (16%) and other ports (5%). Port Hedland’s iron ore exports rose 4% to 472Mt in 2017. Cape Lambert’s iron ore Dampier exports rose 3% to 177Mt in 2017. Dampier’s iron ore exports fell 2% to 127Mt in 2017. Other ports Rio Tinto completed expansions at Cape Lambert and Dampier in 2015, raising 0Mt 100Mt 200Mt 300Mt 400Mt 500Mt annual capacity to 210Mt and 150Mt respectively. Annual shipping capacity in 2016 2017 Port Hedland is planned to increase from Source: ABS 5368.0 International Trade in Goods and Services.