Iron Ore is the basic raw material used for the iron and steel making industry. Although iron has many specific uses (pipes, fittings, engine block), its main use is in the production of steel. Steel has several desirable properties. Making it the main structural metal in engineering and building projects and accounts for 90% of all metal used each year. Several types of steel exist containing varying amounts of iron alloyed either with other metals (chromium, manganese, nickel, molybdenum) or carbon to increase strength and durability.
Most iron ores mined today comprise the iron oxide minerals hematite, Fe2O3; goethite, Fe2O3,H2O, limonite, a mixture of hydrated iron oxides and magnetite, Fe3O4. Australia, China, Brazil, South Africa and Sweden are the world’s major iron ore producers and exporters, accounting for more than 88% of the world's iron ore exports
Nice website about the steel industry news is :
http://www.issb.co.uk/steel_news#steel_news.
With the rising price of oil the production cost of steel is also expected to increase.
Also european steel export is being negatively influenced by weaking dollar.
other notable thing from the long article on global steel industry
is that there are only three countries which account for global export of iron-ore which forms the core of steel manafaturing.
They are : Australia (248 million ton) , Brazil(243 million ton) and India ( 90 million ton).
The indian export suffered from extra export tax which is being currently relaxed. The problem with India is that the exploration of fresh source of iron ore is not being done and thus the resources are being underutilized. Moreover the national demand being large there is enough internal demand for ore. Thus one one hand a demand for national iron ore and the challenge to improve foreign trade surplus are competing with one another.
China imported 275 million ton in 2005 and 326 million ton in 2006, up 19% year-on-year.
[distribution: Australia : 127 million tonnes, Brazil: 76 million tonnes, and India 75 million tonnes]
EU imported 172 million tonnes in 2005 and 169 million tonnes in 2006.
Japanese imports were steady at 132 million tonnes in 2005 and 134 million tonnes in 2006.
Now which are the companies who are leaders in iron ore manafacturing and export ?
To answer this question the following website proves useful:
http://www.mbendi.co.za/indy/ming/iron/sa/br/p0005.htm
Here is the quote from the above:
" Brazil is the one of the world's largest iron ore producers and exporters. Iron ore has traditionally been country's largest export product, accounting for 5% of the total value of mineral exports. Japan (13%), Germany (11%), China (22%) and South Korea were the main importers of Brazilian iron ore. CVRD and MBR (Mineracao Brasileiras Reunidas), Samarco Mineracao and CSN (Companhia Siderurgica Nacional) are Brazil's largest iron ore exporters. Other major iron ore producers include Samitri, Ferteco. Ferteco is Brazil's third largest iron ore producer - and was purchased by CVRD in mid 2001. Ferteco operates the Fabrica and Feijao mines that are located in the Iron Quadrangle of the State of Minas Gerais"
Thus the companies that are publicly listed and thus profitable investment opportunities:
Companhia Vale do Rio Doce RIO (NYSE:RIO) (FR:Val_Py)(Ratio shows good cash position and a below S&P P/E).
COMPANHIA SIDER ADS (NYSE:SID) P/E: 16.91 , EPS: 3.33 anf fEPS:5.48(2007-dec) .
For people in Europe it is interesting to have the shares in Euro rather than in Dollar to avoid devaluation in currency.
Some analysis of the above two companies:(from Jubak's column)
"First, Brazilian iron ore and nickel producer Companhia Rio do Vale Doce (RIO) showed up in my Feb. 27 'Safe bets: 10 world-class foreign blue chips,' and then it popped up in today's column on stocks to buy for the commodities rally. I'd say that means it's time to add it to Jubak's Picks. The company is the low-cost (and largest) producer of iron ore in the world and has grabbed the lion's share -- 23% -- of the Chinese iron ore market. It's Companhia Rio do Vale Doce's big move into nickel with the 2006 purchase of Canada's Inco that makes the stock a buy in this rally. Nickel prices look set to climb by about 60% in 2007, and that's good news for a company that took on big debt to buy Inco and that has huge new nickel mines scheduled to go into production in 2008 and 2009. The company also has been busy buying coal reserves in Australia and Mozambique. Wall Street analysts project the company will earn $4.04 per share in 2007. As of April 17, 2007, I'm adding the stock to Jubak's Picks with a target price of $52.50 a share by March 2008."
Now the australian counterpart for investment opportunities. Here is the website that has some information about the companies. To quote from them states:
"Australia is an iron ore-producing country. The following iron ore mines are located in Australia : BHP-OB23/25, BHP-Yandi, Brockman No.2/Syncline, Bungaroo Creek, Channar, Cockatoo Island, Fortescue, Goldsworthy, HIYandi, Homestead, Hope Downs, Jimblebar, Koolyanobbing, Marandoo, Middleback Ranges, Mining Area C, Mount Whaleback, Paraburdoo, Robe River Iron Ore, SASE jv, Savage River, Tallering Peak, Tom Price, West Angelas.
These Iron Ore Mines are active in the following commodities : Iron Ore.
They are owned by the following companies : An Feng, AuIron Energy Ltd, Ausmelt Limited, Australian Bulk Minerals, BHP Billiton, CI Minerals Australia Pty Ltd, CMIEC, Hamersley Iron Pty Ltd, Henry Walker Eltin, Hope Downs Management Services Pty Ltd, Itochu Australia Ltd, Kingstream Resources NL, Krakatau Steel, Mineralogy Pty Ltd, Mitsui & Co Ltd, Mitsui Iron Ore Development, Nippon Steel Corporation, OneSteel Limited, Portman Limited, Portman Mining Limited, Rio Tinto, Sumitomo Metal Mining Co. Ltd. "
So here are the possible investment opportunities:
Among the above companies the largest are BHP Billiton, Rio Tinto and RIO. Here is a recent news article that shows future trend in Iron ore prices.
"China Accuses Iron Ore Giants Of Cutting Supplies".
Key news in the above article is :
"The three mining companies produce about 75% of the globe's iron ore, a key ingredient used to make steel.
China, home to the world's fourth largest economy and reliant on huge amounts of the key ingredient, has been anxious to have its voice heard in iron ore contract price negotiations since ore prices surged 71.5% in 2005. After protracted and acrimonious negotiations, China agreed to a further 19% rise in iron ore prices for 2006 and then a further 9.5% increase in 2007.
China is the world's biggest consumer of iron ore, importing 326.3 million tons last year, an increase of 18.6% from 2005. This year China is expected to import 367 million tons of iron ore, the Shanghai Securities News reported earlier this week citing Luo Binsheng, the secretary general of the industry group."
A recent news shows consolidation of the chinese steel manafacturer Baosteel :
"China's steel making giant, Baosteel<600019> inked a letter of intent with iron ore producer Companhia Vale do Rio Doce (CVRD)
This kind of cooperation is likely to strengthen the position of China to dictate the global iron ore/finished steel product pricing policy. Moreover there is also a possibility that in the future china will find more iron ore reserves on its own territory and thus will reduce it's dependence on export. This will have perhaps the following impact.
- Increase in supply of iron ore that may balance the price of iron ore which has seen substantial rise in the last few years.
- China's increased dominance in the market fuelled by its economic growth.
In the short term(1-5 yr) there may be stabilization of demand/supply equation. And this will mean that the recent sharp share price increase cannot be supported. And in the long term if iron ore suppliers like India can play a more dominant role then they can also have a share of the profit in this sector. The pricing policy which is right now being dictated by countries like Japan cannot hold anymore.
In the long run if China manages to acquire firms in countries like Brazil then they will have a big friend and this will level out the pricing policy in their favour.
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