Iron ore facts and common questions answered
Last year we began a series of posts in which we answer typical questions about the various commodities we cover with our Consensus Forecast commodities report. Last year we wrote posts on Brent and WTI crude oil as well as gold. This time out we will be covering iron ore, one of the most important yet underappreciated commodities. Keep checking back with us for more in our commodities explainer series.
History of iron ore
You may recognize iron ore as one of the key commodities traded across the world, but our history with iron ore predates all modern financial markets by a good few years. As far back as 3200 BC humans have been working with iron in various capacities. However, it wasn't until around 1200 BC in ancient Mesopotamia that iron production became widespread.
Bronze was the dominant material of choice when it came to producing weapons, armor, tools, and building materials before this time. Bronze is actually a metal alloy, meaning it is forged from two different metals; copper and tin. Unfortunately, copper and tin are seldom found near each other and therefore gathering enough of both metals to make bronze was quite an onerous task. Some historians have stated that the Bronze Age came to an end because of a shortage of tin around 1300 BC amid trade disruptions, which forced metalworkers to find an alternative. Whatever the reason, the beginning of large-scale production of iron brought the Bronze Age to an end and thus brought iron ore into prominance.
The beauty of iron is that it is just one metal. It is not an alloy and therefore, producing iron was rather easy in comparison especially with the development of iron ore smelting to remove impurities, which was a game changer for iron production. Thus, iron production took off and was associated with the expansions of many great civilizations over the millennia. It was used extensively throughout the roman empire, during the Middle Ages, all the way up to the Industrial Revolution.
Iron ore’s perhaps most important contribution came during the Industrial Revolution in the 1800s when iron began to be used to produce steel on a mass scale. The Economist has referred to iron ore as the most important commodity after oil and stated that the development of processes to turn raw earth into steel one of “mankind’s most ingenious achievements.”
Although steel had been produced going back hundreds of years, it did not become a major commodity until the 1800s, especially with the invention of the Bessemer process which was an innovation that allowed for the mass production of steel. Later Andrew Carnegie, the famous Scottish steel tycoon and founder of what is today U.S. Steel, complemented the Bessemer process with the use of the open-hearth furnace to produce steel in the late 19th Century. Iron is still primarily used to this day to produce steel. In fact, it is estimated that 98% of iron ore extracted today is destined for steel production.
Iron ore’s more recent past as a commodity is a rather tumultuous one. Iron ore played a key role in the lead up to WWI as the iron and steel industry was very important to Alsace-Lorraine, territory that was disputed between Germany and France in the early 20th century. However, as the world became more globalized, locally sourced materials for steel making were no longer needed. The rise of cheap bulk shipping, with ships ironically made of steel, allowed the steel industry to break free as iron ore and coal were able to be shipped from far off lands.
After World War II, Japan’s reconstruction called for massive iron ore imports from, of course, Australia, which is still the world’s biggest exporter of iron ore. Japan’s government went on to sign contracts of upwards of 11 years to guarantee that Australia could continually secure mining investment and provide iron ore for them. However, with the arrival of iron ore from Brazil into the market place, a one-year benchmark price system was put into place that lasted for 11 years.
Although that sounds amazing considering how often commodities prices change on today’s markets, the system worked until fairly recently because global steel production grew very slowly and iron ore prices didn’t change much. It wasn’t until early last decade that the price of iron ore began to take off as China’s rapid economic rise led to the country becoming the biggest importer of iron ore, overtaking Japan. As demand grew prices skyrocketed with supply unable to meet demand after decades of little investment.
The antiquated benchmark system that was hammered out between Japan and the big three steel makers, Rio Tinto, BHP Billiton and Vale, outlived its usefulness as China elbowed in, demanding to play a part. Unfortunately for China, their biggest steel maker, Baosteel, only owned 6% of the global market and therefore did not have the bargaining power necessary to influence negotiations. Eventually, however, the big three decided in 2011 to abandon the benchmark and move to short-term contracts at prices set on a spot market.
After skyrocketing last decade, iron ore prices have come back down to Earth in recent years as the commodities super cycle, driven largely by the rapid expansion of China, came to a close. In addition to steel prices, the health of China’s economy is strongly linked to iron ore prices. As China’s economy has slowed in recent years, so has demand for iron ore and prices have consequently fallen. Iron ore prices averaged over USD 130 per metric ton in 2013. Last year they averaged just over USD 58 per metric ton.
Click on image to view larger version
Iron ore prices have plummeted this year. October’s price was 22.6% lower on a year-to-date basis. Behind the recent plunge in prices is a subdued outlook for demand amid a healthy supply of iron ore. In China, environmental concerns have led to a crackdown on steel producers, which will cause steel production to wane and is reducing demand for iron ore. In addition, tighter credit conditions in China or a slowdown in China’s economy could further weigh on steel production. On the supply side, although stockpiles of iron ore have decreased—inventories at Chinese ports dropped for the seventh consecutive week in mid-September—supply going forward is expected to remain robust due to strong investment in the past.
What is Iron Ore?
Iron ore is a mineral from which metallic iron can be extracted when heated in the presence of a reducing agent, such as coke. Iron ore deposits are found in sedimentary rocks, which are essentially rocks that have been formed over time from the accumulation of different sediments. The two most important minerals extracted from iron ore are iron oxides hematite and magnetite. These two iron oxides are used to produce just about every iron and steel object you can image.
How does Iron Ore form?
According to Geology.com almost all of our planet’s major deposits of iron ore are found in rocks that formed around two billion years ago. Back then, copious amounts of dissolved iron could be found in the ocean with almost no dissolved oxygen. It wasn’t until the first organisms capable of photosynthesis came into existence that iron ore began forming deposits. As these organisms released oxygen into the waters, it combined with the dissolved iron, which produced hematite and magnetite. These minerals then accumulated on the sea floor and are now known as the banded iron formations.
As the name suggests, banded iron formations, or BIF for short, is a term used to describe a unique formation of sedimentary rock that appear as thin bands. The different colors contrast against each other and can appear similar to a rainbow.
Banded Iron Formations in Soudan, Minnesota, U.S.
What is iron ore used for?
The vast majority of iron ore is used to produce iron which is in turn used to produce steel. 98% of the iron ore mined today is used for steel production. This includes staples, cars, and steel beams used in the construction of buildings and just about anything else where iron and steel are needed.
How is iron ore mined and processed?
Iron ore is generally located near the Earth’s surface and is therefore mined usually in large open pit mines using a blast and removal technique. The surface soil and rock, also known as the overburden, is dug away to get to the iron ore. This rock is blasted using explosives and the remnants are put into large dump trucks that can hold hundreds of tons. These trucks haul the rock out of the open-pit mine where the ore is usually loaded onto trains. The rock is then taken by rail to processing plants to produce iron and ultimately, steel.
How is iron extracted from iron ore?
To separate the iron ore from the rock, it is ground down and separated by powerful magnets. The ore is then formed and heated into marble sized pellets. Coking coal is used to heat the furnaces which will help in converting the iron ore into iron. The coal is crushed and sealed in air tight ovens and baked for 12 to 16 hours. This yields solid carbon fuel which will come together with the iron ore pellets in a blast furnace. A bit of limestone is added to remove any impurities. Super-heated air pumped into the blast furnace combusts to the coke and turns the ore into molten iron reaching degrees upwards of 2700 degrees Fahrenheit (1480 degrees Celsius). The molten hot iron is then put into massive submarine ladles and taken to the steel mill to produce cold hard steel. Sometimes it is cast into iron ingots, also known as pig iron, for later use or resale.
How much iron ore is produced per year?
According to the USGS, about 2230 tons of useable iron ore was produced globally in 2016. Australia, Brazil and China are responsible for the bulk of the iron ore produced per year, accounting for roughly 70% in 2016, while Australia accounted for 37% itself. Seaborne iron ore is iron ore that is produced to be shipped to other countries. Below is a graph and table showing historical data and forecasts on seaborne iron ore supply and demand from our Consensus Forecast report.
What countries have the highest iron ore reserves or deposits?
Iron ore reserves are defined as deposits of iron ore that can economically and feasibly be extracted. However, these numbers are often dynamic, meaning that the numbers may change as ore is mined or the feasibility of extraction is diminished. More commonly, however, the numbers may increase as additional deposits are developed, current deposits are more thoroughly explored, or new technology makes previously unfeasible extraction of ore, feasible. According to the USGS, Australia has by far and away the most in iron ore reserves followed by Russia, China and Brazil.
That's about it for iron ore. If you have any other questions related to iron ore or would like suggest another commodity send us an email at [email protected]. Also, don't forget to download one of our sample reports by clicking on the button below.
provided courtesy of
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Date: October 17, 2017
TagsItaly Precious Metals Commodities Major Economies oil prices Portugal TPP France Iran MENA Vietnam Energy Commodities Base Metals Commodities Bitcoin Commodities Spain Argentina Agricultural Commodities Brazil Healthcare Housing Market Venezuela Forex Emerging Markets Colombia Africa Consensus Forecast Greece Russia Germany China Sub-Saharan Africa Banking Sector Trade Brexit United States Cryptocurrency G7 Gold Latin America UK European Union Turkey Euro Area Tunisia Ukraine United Kingdom Unemployment rate Investment precious metals Oil India Inflation South Africa OPEC USA Company News Australia Economic Growth (GDP) Mexico Asia Exchange Rate IMF Infographic Canada Nordic Economies Japan Eastern Europe
Downside risks to Guatemala's outlook stem from potential political and economic uncertainty leading up to next yea…
3 hours ago
Brazil's growth forecast was cut 0.2 percentage points this month and the economy is now seen expanding 1.9% in 201…
5 hours ago
RT @: Estoy en el puesto 15 en la lista de los 50 mejores influencers de economía de @Met the why particular para seguir en las redes…
6 hours ago
‘Semáforo’ del peso da el ‘verde’ a TLCAN: analistas via @ por @
6 hours ago
While strong market fundamentals should push Agricultural commodity prices up this year, the increase will be dampe…
7 hours ago
- How can Latin America’s business environment benefit from technological change?
- Mexico: A look at the past, present and future as elections loom
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- 2018 & 2019 Economic Outlook for the Top Oil Producing Countries
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- The Poorest Countries in the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Gold: The Most Precious of Metals (Part 3)
- Venezuela's Electoral Conundrum
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- China’s growing influence on the Latin American economy
- Top Economics & Finance Blogs of 2018
- How Latin America emerged from recession in 2017
- Is this the beginning of the end for Bitcoin?
- Risks and Opportunities for 2018 - Daniel Lacalle
- Emerging Markets 2018 Economic Outlook
- The role of FDI in Vietnam’s socio-economic development
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- The World's Top 11 Largest Economies
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- Met the why particular Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 110-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- Met the why particular partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit
- Brazil's Perilous Economic Situation in 2015
- Met the why particular Launches Sub-Saharan Africa Report, Expands Coverage to 117 Countries
- How do the European Commission's Forecasts and Met the why particular' Forecasts for Europe compare?
- How will the South African economy weather recent challenges?