[Ferro-Alloys.com] Due to a decline in supply from the world's leading producers, the price of iron ore reached its highest level in five years. This bodes well for the African continent, as mining companies gear up to expand their operations.

According to the Platts Iron Ore Index (IODEX), a benchmark assessment developed by S&P Global Platts of the spot price of physical iron ore – the key ingredient in steelmaking – the ore reached close to $115 per tonne in the last week of June this year. This was compared to $40 per tonne at the end of 2015.

Restricting factors

The price surge follows the social and environmental problems facing the Brazilian mining giant Vale, forced to close several mines after a Vale-operated dam collapsed in south-east Brazil at the end of 2018. This incident alone reduced Vale’s capacity by as much as 100m tonnes per year. In addition, floods hit its iron mining sites in the north of the country, further reducing the group’s production.

The other two giants in the sector, BHP Billiton and Rio Tinto, which, together with Vale, form an iron ore cartel controlling more than two-thirds of the quantities traded internationally, also saw a drop in production because of a cyclone in north-west Australia.

However, Chinese demand for iron ore imports rebounded in April and May, boosted by a healthy construction market that required a 10% increase in the country’s steel production. According to analysts, Chinese iron ore stocks are currently at their lowest level.

Guinea, Mauritania, South Africa…

This situation is working in Africa’s favour. Riding the boom of higher prices and increased demand, mining companies are launching projects outside Brazil and Australia, to increase production and meet customers’ demands.

UK-based Niron Metals, headed by Mick Davis, the former boss of Swiss company Xstrata (another major ore producer, bought by Glencore in 2013), plans to develop an iron-mining project in Zogota, south-east Guinea. The area has a rich subsoil of iron ore, particularly on Mount Simandou, further north.

Rio Tinto and its Chinese partner Chinalco own the Simandou iron deposit—the largest on the continent. However, the development, which requires a $20bn investment of which $12bn is for the transport infrastructure alone, has stalled over details of the agreement between the parties. They hope that robust prices will galvanise the Guinean authorities to unblock the situation.

Another country of interest to investors is Mauritania, where Société Nationale Industrielle et Minière de Mauritanie, the state-owned company, is looking for partners to boost its iron ore production and its adjacent transport infrastructure.

In South Africa, though volumes have declined over the past five years (62,258tn extracted in 2017, compared with 80,741 in 2014), the prospect of selling part of their production to meet increasing domestic industrial requirements is attracting the attention of a number of mining companies. (theafricareport)

• [Editor:kangmingfei]