Contents:

Iron Ore Market

Global iron ore reserves in 2017
billion tonnes

The global iron ore market remains highly consolidated with four leaders (Vale, BHP Billiton, Rio Tinto, and FMG) accounting for over two-thirds of global iron ore sales. The leading countries producing commercial iron ore are Australia, Brazil, China, India, and Russia, altogether they account for over 81% of global output.

Global iron ore output grew by 2.8% year-on-year in 2017, totalling 2,095 million tonnes. Production grew in India, Australia, Brazil, as well as China, which had seen a decline in output in 2016. In Russia, supplies of iron ore products to the market declined by 3.4% in 2017 due to the launch of HBI-3 Plant at Lebedinsky GOK.

According to AME Research, global iron ore consumption in 2017 amounted to 2,068 million tonnes. Demand for iron ore raw materials grew by 3.6% year-on-year globally in 2017, while in Europe demand grew by 4.3% year-on-year. According to Russian industrial agency Rudprom, iron ore demand in Russia increased by 2.2% year-on-year. China remains the leading consumer of iron ore products, accounting for 58.5% of the global demand in 2017. China also remains the largest steelmaker and consumer of raw materials (including iron ore) worldwide.


Iron ore output and consumption by country and region million tonnes
Output   Consumption
2013 2014 2015 2016 2017 Country 2013 2014 2015 2016 2017
350 283 229 209 227 China 1 165 1 191 1 155 1 174 1 210
35.7 37.8 34.3 32.9 31.8 Europe 158 163 162 158 165
          Japan 138 138 133 131 131
192 188 187 184 188 CIS 135 131 128 128 128
122 117 136 173 171 India 108 114 118 124 127
363 391 405 385 401 Brazil 40.0 41.2 42.4 36.9 40.3
48.6 50.9 43.1 39.0 45.8 USA 45.6 46.0 39.8 37.4 39.7
60 56 57 54.4 59 North America
(excluding the USA)
26.7 28.2 25.3 26.6 28.5
31 33 36 32 33 Central and South America
(excluding Brazil)
16.4 14.8 14.7 10.2 8.1
59.8 70.8 63.8 56.3 53.8 South Africa 9.53 9.27 8.35 7.64 8.02
583 701 762 800 810 Australia 5.09 4.80 5.26 5.85 5.74
130.6 114.1 76.1 70.2 74.8 Rest of the world 142.9 155.9 155.6 158.9 176.6
1,976 2,044 2,029 2,037 2,095 Total 1,990 2,036 1,987 1,997 2,068

Metalloinvest performs regular assessment of factors influencing the iron ore raw materials market for the purpose of mid-term and long-term growth planning. The Company’s management expects global demand for iron ore to continue growing over the medium term with the key drivers being growth in GDP and steel output in developed economies, as well as emerging markets, primarily in China.

The long-term trends in the global iron ore market are defined by increased supply of iron ore with low iron content. Lower quality raw materials increase steel production costs and lead to higher pollutant emissions by steelmakers. At the same time, environmental requirements are becoming more stringent, particularly in China, which implies reduction of harmful environmental impact of the country’s steelmaking facilities. This is being achieved, in part, by improving the quality of iron ore raw materials consumed in the country.

The stricter environmental requirements in the ferrous metals industry and the lower quality of iron ore raw materials have led to a premium on raw materials with high iron content.

The high volatility of global iron ore prices constrains investment in commodity assets worldwide, although major global iron ore producers have begun investing in improving the ore quality.

Iron ore prices (CFR China Spot, 62% Fe)
USD/tonne

In 2017, the average annual iron ore price grew from USD 57.5 to USD 70.9 per tonne CFR China. The fundamental drivers of the global price growth were stricter environmental requirements and closure of outdated steelmaking capacities in China. This led to an increase in demand for quality iron ore raw materials in the country, as well as to growth in pig iron and steel output in the majority of regions around the world, amid a moderate growth in iron ore supply.

At present, a number of industry news agencies such as Argus, Platts, The Steel Index, Metal Bulletin, Mysteel, and SteelHome provide the latest and most accurate information on spot prices of iron ore raw materials using indices. The transition to pricing based on various index baskets continues as price-related information becomes more accessible. Metalloinvest monitors commodity markets on a daily basis, as well as commodity trading across global commodity exchanges.

Metalloinvest’s position

Metalloinvest owns the world’s second largest proven iron ore reserves (14.1 billion tonnes3 under JORC standards) and is the largest producer and supplier of iron ore products in Russia and the CIS. Metalloinvest was ranked fifth globally by commercial iron ore output in 2017.

The Company is a global producer of beneficiated iron ore products, processing most of its primary iron ore concentrate into high value-added products, such as high-quality iron ore concentrate, pellets, and HBI/DRI.

FN Steel
Having used HBI for more than 30 years we can affirm that the cooperation strengthened during the last years with Metalloinvest, large-sized, reliable, serious and industrially prepared partner, has allowed us to make less penalizing the use of this product in our production cycle turning it into a fundamental element for our manufacturing processes.


Pellet Market

According to AME Research, global pellet output in 2017 was 398.0 million tonnes, up 5% year-on-year. The largest pellet producers are those that mainly service the needs of local steelmakers, including China, USA, Russia, and Ukraine,. In China, where production relies mostly on raw material imports, pellet output reached 121 million tonnes or almost 30% of global output.


Pellet output by country million tonnes
Country 2013 2014 2015 2016 2017
China 134.1 140.0 120.0 119.0 121.0
USA 49.2 50.6 43.1 42.2 44.6
Russia 37.9 38.3 39.4 41.2 42.7
Brazil 50.5 57.4 60.5 36.4 39.9
Ukraine 22.4 20.9 19.4 19.9 23.6
Sweden 22.4 22.4 21.2 23.5 22.2
Iran 15.7 20.8 20.6 20.6 20.6
Canada 18.3 18.0 18.6 19.0 19.3
India 33.6 21.4 16.2 15.3 18.1
Oman 8.0 8.4 7.9 8.3 8.3
Mexico 7.4 7.2 7.2 6.6 7.7
Kazakhstan 6.5 7.2 8.2 6.2 7.2
Bahrain 9.8 4.7 5.1 4.4 6.9
The Netherlands 4.3 4.3 4.3 4.3 4.3
Australia 1.9 3.8 4.0 3.9 3.8
Japan 2.9 2.9 2.9 2.9 2.9
Venezuela 3.9 3.9 3.9 1.5 2.4
Chile 2.3 1.8 3.6 3.4 1.7
Peru 0.1 0.2 0.1 0.2 0.2
Total 435.0 434.5 407.0 379.0 398.0

Metalloinvest’s position

Metalloinvest is the second largest pellet producer globally and the largest producer in Russia and the CIS. In 2017, the Company accounted for ca. 60% of total pellet output in Russia, and ca. 6% of the total output globally.

One of the key drivers of the Company’s competitive advantages in the global market is its significantly lower pellet production costs compared to international peers.


HBI and DRI Market

Hot briquetted iron (HBI) and direct reduced iron (DRI) are essential components in producing high-quality steel grades, enabling the Company to maximise the profitability of its steelmaking business. HBI and DRI are iron ore products with one of the highest potential.

Currently, there is a trend towards building new electrometallurgical production facilities with increased steelmaking efficiency, requiring purer raw materials, and hence driving the demand for HBI/DRI.

The global HBI/DRI industry is highly concentrated. The undisputed leaders in terms of HBI/DRI capacity are India and Iran, accounting for approximately 58% of global output in 2017. The majority of global iron ore products are produced for captive consumption for integrated steelmaking plants. Russia is ranked third globally while being the only HBI/DRI producer in the CIS. HBI/DRI production requires high-quality iron ore and access to relatively cheap natural gas , making Russia one of the key HBI producing regions in the world.

In 2017, global HBI/DRI output grew by 7.5 million tonnes, or 10.3% year-on-year, primarily driven by an increased production in Iran, Russia, and Egypt, with a combined contribution of 32.1% to the global production growth. Global HBI/DRI output in 2017 totalled 79.9 million tonnes.


HBI/DRI output by country million tonnes
Country 2016 2017
India 27.0 25.9
Iran 16.0 20.5
Russia 5.7 7.0
Mexico 5.3 6.1
Saudi Arabia 5.1 4.8
Egypt 2.6 4.6
UAE 3.5 3.6
Qatar 2.5 2.5
Canada 1.4 1.6
Argentina 0.8 1.2
South Africa 0.7 0.9
Libya 0.7 0.6
Venezuela 0.9 0.5
Trinidad and Tobago 0.1 0
Total 72.3 79.8

Metalloinvest’s position

Metalloinvest maintains a stable position in the HBI/DRI market. Over the last four years, Metalloinvest has been the world’s leading producer of merchant HBI. Following the launch of HBI-3 Plant, the Company’s market share grew to approximately 50% globally.

Metalloinvest was able to increase its supply of metallised products to the global market following the launch of HBI-3 Plant at Lebedinsky GOK in 2017, further strengthening its leadership in the merchant HBI market.

The Company’s iron ore beneficiation technology, access to gas pipelines, and strategic investment projects ensure it is wellpositioned to retain its leadership in the global HBI/DRI market.


Steel Market

Average annual square billet price
(FOB Black Sea)
USD/tonne

According to AME Research, global steel output in 2017 grew by 5.0% year-on-year to 1,706.6 million tonnes. China is the leading player in the market, accounting for 50% of global steel output and 47% of steel consumption.

Growth of global steel prices in 2017 was driven by China’s domestic policy of stimulating economic growth and tightening environmental regulations, as well as a stronger demand for steel outside China. The closure of Chinese heavily polluting facilities amid growing domestic consumption of rolled steel products and more stringent export controls led to a drop in Chinese exports of finished rolled steel products, which fell by 31% year-on-year to 75.6 million tonnes (according to China Customs).

Steel output and consumption by region million tonnes
Output   Consumption
2013 2014 2015 2016 2017 Region 2013 2014 2015 2016 2017
822.0 822.8 803.8 808.4 848.4 China 735.1 710.8 672.3 681.1 759.4
300.3 315.5 307.7 313.1 330.4 Rest of Asia 284.4 298.6 303.7 316.5 329.8
205.0 207.7 202.3 200.3 210.3 Europe 180.3 187.1 195.0 197.8 201.6
117.5 119.9 109.5 110.4 114.5 North America 130.6 145.6 133.7 132.4 137.4
27.0 30.0 29.4 31.5 35.5 Middle East 51.7 53.6 52.9 54.7 57.0
108.4 106.1 101.5 102.4 103.2 CIS 58.6 55.9 50.5 49.4 50.5
47.3 46.3 45.3 39.9 42.8 Central and South Amer 51.3 48.9 45.6 41.6 45.6
16.5 15.5 14.2 13.7 15.5 Africa 36.4 37.4 38.7 38.6 39.9
5.6 5.5 5.7 5.8 6.0 Oceania 6.7 7.4 7.2 7.5 7.7
1,650 1,669 1,620 1,626 1,707 Total 1,535 1,545 1,500 1,520 1,629

Metalloinvest’s position

Metalloinvest is the leading regional producer of niche rolled steel products. According to Chermet Corporation, Metalloinvest accounted for approximately 7% of Russia’s total steel output in 2017.

The Company offers a wide product range and maintains partnerships with Russian and international customers from various industries. Metalloinvest is the leading Russian producer of bearing steel, special bar quality steels (SBQ) for the automotive and hardware industries, and heavy plate grades for bridge construction.

In a highly competitive market environment, the Company’s management is focused on improving the quality of its steel products, including SBQ at OEMK, as well as SBQ rods, quality wire rods (QWR), and heavy plates at Ural Steel.