Iron ore industry Research Report: Lonely at the top

1. Basic information:

Nearly half of Australia's reserves and mining costs are extremely advantageous, and domestic ore is marginal production capacity

1.1 Reserves, taste and cost: Australia and Pakistan account for nearly half of the reserves and have significant cost advantages

From the perspective of reserves: in 2020, the global iron ore reserves are 180 billion tons, with Australia, Brazil, Russia and China accounting for 71.7%. According to USGS statistics, the iron ore reserves of the above countries are 50 billion, 34 billion tons, 25 billion tons and 20 billion tons, respectively, accounting for 27.8%, 18.9%, 13.9% and 11.1% of the world's total reserves. In addition, India, Ukraine and Canada and other countries are rich in iron ore resources.

From the perspective of grade: the average grade of global iron ore in 2020 is 46.6%, the average grade of South Africa and India is more than 60%, and the taste of Ukraine, China and the United States is low. According to the USGS 2020 statistics, the average iron ore grade in South Africa and India exceeds 60%; The average grade of iron ore in Russia and Iran is between 50% and 60%; The average iron ore grade in Australia, Sweden and Brazil is between 40% and 50%. The average grade of iron ore in China is only 34.5%, well below the global average of 46.6%.

From the production point of view: in 2020, the global iron ore production reached 2.4 billion tons, and Australia, Brazil, India, China and Russia accounted for 82% of the output. According to USGS statistics, the global iron ore production in 2020 reached 2.4 billion tons, a year-on-year decrease of 2.04%, mainly concentrated in Australia, Brazil, India, China and Russia, accounting for 37.5%, 16.7%, 9.6%, 14.2% and 4.0% of the global iron ore production, respectively. That adds up to 82%.

From the point of view of the average cost of iron ore in various countries: Australia and Brazil have high production and prominent cost advantages, and 80% and 90% of the global iron ore cost curve are concentrated near the cost of iron ore in China. According to the WESTERN AUSTRALIA IRON ORE PROFILE - March 2021, released by the Government of Western Australia, The top five countries for CFR cash costs in 2020 are India, Australia, Brazil, South Africa and Russia, with CFR cash costs of 26.7, 34.5, 36.0, 48.6 and 60.0 USD/ton respectively, and China's CFR cash costs of 82.8 USD/ton. Combined with the 2020 production data compiled by the USGS, we make the production-cost curve as follows: 80% and 90% of the global iron ore cost curve are concentrated around the Chinese iron ore cost level.

From the mainstream mine C1 cash cost point of view: China's iron concentrate manufacturing cost is almost four times the cost of the four major mines, and the historical cost decline is small. According to the annual reports of the four major mines in fiscal year 2020, the cash cost of iron ore C1 of the four major mines is only 11.84-15.40 US dollars/ton, according to Mysteel, The average manufacturing cost of iron concentrate in key domestic mines in 2020 is 367.54 yuan/ton (using the average exchange rate of RMB/US dollar 1 yuan = US $0.1449 in 2020, equal to US $54.54 / ton), and the average in the past 7 years is 359.37 yuan/ton. The overall production cost of iron concentrate in domestic key mines shows an oscillating trend. It can be seen that the C1 cash cost of the four major mines is significantly lower than the domestic iron concentrate manufacturing cost.

From the perspective of 62%CFR cash cost of mainstream mines, the four major mines are $21.06- $30.78 / dry metric ton. We convert the C1 cash cost of the four major mines into the CFR cash cost at 62% grade, and the formula is 62%CFR cash cost (USD/dry metric ton) = (C1* (1+ resource tax rate) + freight rate) * (1- water content) * (62%/ average grade). Based on company announcements and Wind statistics, we calculate that the 62%CFR cash cost for Vale, BHP Billiton, Rio Tinto and FMG in FY2020 is $30.78, 21.34, 22.11 and 21.06 / Mt, respectively.

1.2 Import and export trade flow: Asia is the main import region, Oceania and America are the main export region

By region, Asia is the world's main iron ore import region, Oceania and the Americas for the main export region. According to statistics from the International Iron and Steel Association, from the import side, in 2019, Asia's annual iron ore imports were 1.40 billion tons, accounting for 84.8% of the global total iron ore imports, leading the second EU 28 countries by 1.26 billion tons. Among them, China contributed the main force, as the largest importer of iron ore, the total import of iron ore in 2019 reached 1.07 billion tons, accounting for 64.8% of the total global import. From the export side, the total exports of Oceania and the Americas in 2019 were 890 million tons and 430 million tons, respectively, ranking first and second in the world's total exports. In addition, it mainly exports to outside the region, and the supply to the region is small, accounting for only 0% and 3.7% of the total export. In addition, the volume of iron ore exports from Africa and the Middle East is also in the forefront, with annual exports of 120 million tons in 2019, ranking third. Although the total volume of iron ore exports of Asian countries is large, it is mainly supplied within the region, and the export volume outside the region only accounts for 6.5% of the total export volume.