Africa’s iron ore potential & implications for the global market

Luke Hurst (Economics, Crawford School)

High Impact Public Policy Research in the Asian Century Crawford School of Public Policy 27 November 2012

Impact of China’s rise on the iron ore market

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Africa’s iron ore potential

•  475-575mt/a (RBC Capital Markets, 32 mines by 2017)

•  300mt/a (Ocean Equities, 16 mines by 2017)

•  47mt/a (BREE, Guinea & Mauritania by 2017)

•  Obstacles for project development:

o  Lack of infrastructure

o  Lack of knowledge capital

o  Unpredictable governance

o  Western banks hesitant to lend

Method

•  27 projects (greenfield and expansions)

•  3 risk based scenarios

•  Risk index 1.  Host operational risk 2.  Host political risk 3.  Project infrastructure requirements 4.  Investor experience 5.  Investor-government relations 6.  Funding risks 7.  Chinese ownership & funding

West & central African iron ore scenarios

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West African exports (BREE 2012)

mt/a

West & central African iron ore scenarios

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Low risk capacity West African exports (BREE 2012)

mt/a

West & central African iron ore scenarios

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Medium risk capacity Low risk capacity West African exports (BREE 2012)

mt/a

West & central African iron ore scenarios

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High risk capacity Medium risk capacity Low risk capacity West African exports (BREE 2012)

mt/a

Forecast global export demand

2011 2012 2013 2014 2015 2016 2017 2018* High risk Medium risk Low risk Global export demand (BREE 2012) 1075 1149 1213 1279 1355 1439 1500 1561

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Potential for export over-capacity

2011 2012 2013 2014 2015 2016 2017 2018* High risk 0.0% 8.0% 12.1% 17.3% 17.4% 17.8% 23.7% 25.9% Medium risk 0.0% 5.0% 7.3% 10.5% 9.9% 9.3% 12.0% 11.5% Low risk 0.0% 2.5% 3.6% 5.2% 4.9% 4.7% 6.0% 5.8% Global export demand (BREE 2012) 1075 1149 1213 1279 1355 1439 1500 1561

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CIF

to C

hina

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Rio Tinto Vale

Forte

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P B

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n

1411 mt (RMG)

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Global production capacity expansion

(2011-18)

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Low risk scenario(2018)

Ave. CIF A$50-80/t

Import demand (2018) 1561 mt

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Medium risk scenario (2018)

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High risk scenario(2018)

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Some public policy implications

AUSTRALIA

•  Tax revenues

•  Employment impacts

AFRICA

•  Governance and institutions

CHINA

•  Engagement with developing countries