Market Basics » Iron Ore

Description

Iron ore is a mineral, forming naturally over geological periods in the ground and within rocks. It is one of the most common elements on earth, comprising about 5% of the earth's crust.

Iron ores are usually rich in iron oxides and vary in color from dark grey, bright yellow, deep purple, to rusty red.

Iron ore is the raw material used to make pig iron, which is one of the main raw materials to make steel. 98% of the mined iron ore is used to make steel.

The iron itself is usually found in the form of magnetite (Fe3O4), haematite (Fe2O3), goethite (FeO(OH)), limonite (FeO(OH).n(H2O)) or siderite (FeCO3).

Haematite is also known as "natural ore", a name which refers to the early years of mining, when certain haematite ores containing up to 66% iron could be fed directly into iron-making blast furnaces.

Trading unit

With China's rise to prominence in the demand for iron ore, pricing has recently become denominated in yuan per metric tonne. Previously it was quoted in US dollars per metric tonne, also referred to in U.S. cents per dry long ton unit. To determine U.S. dollars/ton, multiply U.S. cents per dry long ton unit by the iron content percentage.

To convert quantities from dry long tonnes to dry metric tonnes, multiply dry long tonnes by 1.016.

Units for delivery

20,000 metric tonne lots of granular fines, with at least 90% of cargo below 10 millimetres, according to The Steel Index. Iron content varies depending on the contract, but generally ranges from 58% to 62%.

Pricing mechanisms

Principally negotiated in long-term contracts, but there are efforts to develop over-the-counter markets to facilitate more efficient pricing.

A significant factor in iron ore pricing is the price of seaborne freight. Australia enjoys substantial advantages over Brazil and South Africa because of its proximity to China.

Avenues of trade

Iron ore does not trade on any markets. It exchanges hands from producers and users based on prices set by periodic negotiations, usually annually. This arrangement is known as the "annual benchmark negotiations".

Deutsche Bank and Credit Suisse in May of 2008 launched an over-the-counter market for spot iron ore. The two banks offer cash-settled swaps in iron ore that will be settled on a monthly basis.

There seems to be little interest in an iron ore exchange traded fund at this time.

Supply

According to the U.S. Geological Survey, China led 2007 iron ore production by a wide margin, producing more than 1.6 times the iron ore of Brazil, the next closest country. Australia is the other main notable iron ore-mining country, along with South Africa.

Very little scrap iron is recycled, but scrap steel is heavily recycled. Steel's overall recycling rate of more than 67% is far higher than that of any other recycled material, capturing more than 1-1/4 times as much tonnage as all other materials combined.

Notable iron ore miners include Brazil's VALE, BHP Billiton and Rio Tinto Plc.

Demand

Iron ore is the raw material used to make pig iron, which is one of the main raw materials to make steel for structural engineering applications, automobiles and general machinery. About 98% of the mined iron ore is used to make steel, according to the Mineral Information Institute.

Steel demand comes from commercial and residential construction, including structural production of warehouses, stores, office and bank buildings, roofs, bridges and utility poles. It also is used in automotive production in bumpers, fuel tanks, wheels and other instances, as well as in steep packaging, such as tin-coated steel cans.

Other uses for iron ore and iron include: powdered iron, used in metallurgy products, magnets, high-frequency cores, auto parts, catalyst; radioactive iron, used in medicine, tracer element in biochemical and metallurgical research; iron blue, used in paints, printing inks, plastics, cosmetics (eye shadow), artist colours, black iron oxide, metallurgy, medicine, magnetic ink and in ferrites for electronics industry.

Extraction, Processing, Refining & Supply Chain

Explosives are used to blast through surface rock to access iron ore deposits below the ground. Haul trucks transport the ore to crushing plants, where the ore is crushed into smaller pieces of varying sizes. Crushed ore is then classified into different sizes based on customer specifications.

The ore is next transported via rail to ports for shipping to overseas customers or smelters. Iron ore usually ends up in blast furnaces and steel mills, where it is turned into iron and steel through smelting and refining.

Iron ore is smelted in blast furnaces to produce pig iron. In a blast furnace, coke and ore are fed through the top of the furnace while heated air is blasted into the bottom of the furnace at temperatures of around 2000°C. The chemical reactions that take place as the ore and coke move down creates molten metal and slag which settle to the bottom of the furnace, where the molten slag floats on top of the more dense molten iron. Iron and slag are tapped off separately from the blast furnace.

Once cooled, the iron is called pig iron. Pig iron is not pure iron as it has 4 to 5 per cent carbon in its make up. Pig iron is used to produce steel or commercially pure iron (wrought iron) through further smelting and refining in furnaces and converters.

Haematite versus Magnetite Ores

Hematite (Fe2O3) at present is the most plentiful form of economically extractable iron-ore, occurring in large quantities throughout the world. Hematite deposits are typically very large, close to surface, with the majority mined via open pits. The average grade of economic Australian and Brazilian hematite resources is between 57 and 63% Fe, meaning that once the ore has been crushed and screened, most hematite deposits require little beneficiation and can be direct-shipable ore (DSO).

The main difference between hematite and magnetite, is that magnetite (Fe3O4) deposits require significant beneficiation, this involves the grinding of ore to a grain size where the magnetite is liberated from its matrix of silicates or cherts. Typically, the grain size of the magnetite makes it unsuitable for blast furnaces unless it is agglomerated, either by sintering, pelletising or briquetting.

The average resource grade for a magnetite deposit in Western Australia and Brazil is between 30% and 37% Fe. The amount of beneficiation required to produce a magnetite product suitable for sale is substantially more than an equivalent hematite DSO project, which is directly proportional to the amount of material that would have to be processed to end up with similar iron ore contents. Because of the beneficiation process, there are substantial energy requirements for the grinding circuit in order to liberate the magnetite.

Iron and its uses

  • Cast iron is a partly refined iron that contains up to 5 per cent carbon. This makes it very hard, but brittle. These properties make it ideal for moulded parts, like car engine blocks.
  • Wrought iron is nearly pure iron mixed with a glasslike material. Unlike cast iron, this type of iron does not rust, and is softer, which makes it suitable for use in outdoor furniture, porch railings and other decorations.
  • Steel is the most common form of iron. It contains about 1 per cent carbon and has properties that make it an excellent material for thousands of different uses.
  • Stainless steel contains chromium, which makes it very resistant to rusting. This makes an ideal material for motor vehicle parts, hospital equipment and food preparation tools and utensils.
  • Tool steel is extremely hard, and is used in metalworking tools. It is produced by tempering certain types of steels by putting them through quick heating and cooling cycles.