The standard economic scheme of the iron and steel industry involves placing production near sources of raw materials, in order to reduce transportation costs. Therefore, the medieval European countries, which had rich resources of iron ore, were major exporters of iron. By the middle of the 17th century, Sweden was one of the main exporters of high-quality metal to the countries of Western Europe. It should be noted that there was practically no trade in iron ore. High transport costs made their transportation economically unjustified until the 20th century. These factors determined the geographic location of steelmaking in the vicinity of iron ore deposits. The presence of iron ore deposits largely determined the economic superiority of Germany, Britain, and France over the rest of the European countries. Ferrous metallurgy was typically a raw material industry with gravitation to the sources of raw materials, which determined its geography and simplified the analysis. Such a territorial structure existed until the 1970s.
Now the volume of world exports of iron ore is about 45% of the volume of production. And the average length of transportation per ton of ore exceeds 5,600 nautical miles. The share of transportation costs in the cost of ore reaches 70%. It should be noted that the main importing countries (countries of Western Europe, Japan) of iron ore are also the main importers of energy resources and coking coal. These countries are also the largest exporters of steel products. On the other hand, many exporting countries of iron ore and coal practically do not develop their steelmaking capacities, increasing the export of raw materials.
What caused the formation of such a territorial gap between the production of iron ore and the smelting of steel? Ferrous metallurgy is still a geographic industry, but the factors that determine the geography of the industry have changed. In our view, the territorial gap between the steelmaking and iron ore industries has become less the result of competition through lower production and transportation costs, which finally led the leaders of Australia and Brazil, as a consequence of the emergence of a centralized iron ore market and historically formed market mechanisms that determine the relations between producers and Consumers of iron ore. Undoubtedly, the reduction of transportation costs has had a huge impact on the development of the industry, however, geography of modern trade in iron ore raw materials causes such factors as geographical location, production and transport costs, and even the wealth of the fields have much less impact than before.
Russia is one of the largest participants in the world trade in steel products. As a result of economic reforms in the early 1990s, a significant gap in prices was formed in the domestic and foreign markets of the country. Now ferrous metals are one of the main export goods of Russia. This was the only way to survive for the huge metallurgical complex that remained after the USSR. However, Russia is experiencing serious opposition from foreign manufacturers of steel products. Already in 1997, about 40 anti-dumping investigations were carried out against Russia, 34 of them against metallurgical enterprises. This leads to a serious weakening of Russian steel producers on the world market. More than 90 restrictive quotas are currently in force against Russia, most of which are related to the products of the metallurgical complex. Anti-dumping proceedings against Russia are conducted in 46 countries of the world. At the moment, many domestic steel producers are trying to replace part of the export market with a growing national market. Nevertheless, the size of this market is still not large enough.
Russia has the world’s largest confirmed iron ore reserves (16.9% of the world). Given the current state of the steel market, Russia’s position in this market, and the trend of moving steelmaking capacities to developing countries, Russia’s potential as an exporter of iron ore to the world market is interesting. The purpose of this chapter is to analyze the world market of iron ore, competitive advantages of the main exporting countries and study the possibilities of applying their experience to Russia.
The date of the beginning of the formation of the world market of iron ore can be considered to be 1892, when the development of the richest deposit of iron ores of Mesabi (the average iron content of about 62%) in the state of Minnesota was started in the United States of America. This led to a sharp drop in prices for iron ore in the national market (from $ 5-6 per tonne to $ 2-3). During the 1890s. The price fell by 60%. The share of Minnesota in the production of iron ore in the United States grew from 6% in 1890 to 51% in 1905. At that time, the share of iron ore in the cost of steel products (in the USA) was 44% (58% of the cost of raw materials). The sharp decline in prices led to a sharp increase in exports of processed products from the US (by 90% over the 1895-1900 period), their share in the country’s exports also increased from 20% to 50%, with the main growth in iron and steel products. For the years 1890-1913. The value of exports of this industry grew from $ 25.5 million to $ 304.6 million. The main competitor of the United States at that time was England. The cost of exporting steel products to Western Europe in just five years (1895 – 1900) increased from $ 8.5 million to $ 45.8 million, with almost half of the exports coming from England. The competitiveness of the British steelmaking industry was in jeopardy. If in the period from 1895 to 1913 gg. The production of iron ore in the United States grew almost 4 times, then in England the growth hardly exceeded 25%. The blow was especially strong in 1912, when the steelmaking industry of England practically stopped for two months because of the strike of railwaymen and coal miners. The discovery of the Mesabi deposit had an economic effect on market prices equal to the 30-year period of productivity improvement in the iron and steel industry.
All this forced England to look for sources of iron ore outside the country, as a result, by 1913, Britain had already imported about 43% of iron ore consumed (in the second half of the nineteenth century, this share did not exceed 5%), mainly from Spain. It should be noted that iron ore from Minnesota was practically not exported, moreover, the southern states mainly consumed ore imported from Cuba. This was not so much due to high transportation costs, but due to the concentration of Minnesota’s iron ore deposits in the hands of U.S. Steel, which between 1984 and 1907 bought up about 75% of all state deposits. In addition, the company has established control over the railway network and the transport system of the Great Lakes. An investigation into the anti-competitive practices of U.S.Steel showed that prices for iron ore were established mainly through agreements between interested parties, and not as a result of competition among manufacturers. The profit of iron ore mines exceeded 33%. Nevertheless, such a system existed until the early 1980s. The above events did not lead to the formation of a centralized iron ore market, moreover, competition in this market was not yet observed, which, probably, was impossible due to high transport costs. However, competition in the global steel market prompted large steelmaking companies to search for cheaper iron ore.
It should be noted that many developed countries began to show interest in remote iron ore deposits at the beginning of the century. For example, Belgium, France, the United States and Great Britain bought up many deposits in the state of Minas Gerais in Brazil as early as 1891, but the first export supply of iron ore was made by this country only in 1930. The push to develop freight flows of iron ore over long distances has become several factors. First, the development of rail and sea transport has led to a reduction in transport costs (sea vessels with a displacement of more than 60 thousand tons and a speed above 50 km / hr appeared only at the beginning of the century). Secondly, the growth of the economies of Western Europe after the Second World War required a huge amount of steel. The development of trade in iron ore products in the Asian region is primarily due to the economic growth of Japan in the 60s.
Nevertheless, the geographic position of steelmaking capacities and iron ore deposits was still of decisive importance. The competition of mining companies was minimal. Evidence of this is the continued high level of production of the poor and heavy in the development of iron ore deposits in many countries of Western Europe. So, for example, France in 1980 produced about 30 million tons. Iron ore. Despite the depletion of iron-rich deposits, the mining of poor taconite ores continued in the USA (Minnesota) (the average iron content in the ores fell to 27% in 1965, and to 20% by 1980). An important factor in the development of trade was also the reduction in the cost of iron ore in the cost of final products to 10%.
About 98% of the produced iron ore is used for the production of steel. Therefore, the demand for iron ore is determined by the demand for steel. The formation of a centralized world market for iron ore in its current form was the collapse of the steel market in the early 1980s. In fact, this crisis occurred as a result of the oil embargo announced by the OPEC countries, which resulted in a sharp increase in energy prices and the global economic crisis.
In the late 1970s, there were four major steel production centers in the world: the Asian (Japan, South Korea and Taiwan), the Western European (Germany, France, the United Kingdom) and two centers in North America (the Canadian-American in the Great Lakes region and the American – on the east coast of the USA). Also, the two biggest steelmaking centers were the USSR and China, but due to the state system in these countries, they were relatively weakly involved in world trade. Most of these countries were the largest oil importers and the oil crisis had the most destructive effect on their economies. As a result of the oil crisis, there was a general economic slowdown, steel consumption decreased. Between 1979 and 1982, its production fell by 20%.
In 1980, the bulk of the production of iron ore (about 80%) accounted for 8 countries (without the USSR and China). Also quite significant volumes of iron ore were extracted by Liberia – 17.4 and Venezuela – 16.1. Production in other countries did not exceed 10 million tons. Most of the iron ore mined in North America and Europe was transported over short distances (about a few hundred km.). Iron ore mined in the Great Lakes region of the United States was sent only to the metallurgical center of the same district. French iron ore was used only in France. The Swedish one is predominantly in Northern Europe. Canadian iron ore from the eastern part of the country went to metallurgical centers in the east of the United States and in the Great Lakes region, as well as in Northern Europe. The remaining four manufacturers sent iron ore for much longer distances. India sold iron ore mainly in Asia. The bulk of Brazilian iron ore sold in Europe, however, Brazil, a significant part of the extracted iron ore sold in Asian markets. Australia exported the bulk of its output to Asian markets, although it sold its ore in Europe. South Africa also sold iron ore in both regions.
It should be noted that the crisis in the steelmaking industry was mainly related to the countries of the Atlantic region. Steel production in the period from 1979 to 1982 declined in five countries in the Atlantic region – the United States, Canada, Germany, France and the United Kingdom, these countries accounted for 90% of the global decline in production. In contrast, steel production in the Pacific region declined slightly, and then again began to grow rapidly. Thus, the greatest problems arose in the iron ore mines of the Atlantic region.
After the collapse of the steel market in the early 80’s, during the period of the crisis’s rising price, iron ore soared to a record level in 1982, which led to an increase in the production of iron ore. However, already this year it became clear that the crisis of the steelmaking industry in North America and Western Europe is more protracted. The existing situation itself had a negative effect on the national iron ore producers of these regions.
For the North American price system, the situation was complicated by the fact that already in 1980 the share of iron ore pellets in the total amount of iron ore produced was 93% for the USA, 53% for Canada. Meanwhile, with the decline in production, most steelmaking companies are trying to use iron ore fines instead of lump ore and pellets. This product is cheaper, and increasing the productivity of the furnaces in conditions of production decline does not make sense. As a result of the crisis, mining companies have accumulated quite large inventories that were poured into the market during 1981-1982. (Mainly Australia, Brazil and Venezuela). At the same time, there was another decline in steel production in North America and Western Europe. Together, these factors have led to stricter competition between iron ore mines in both regions. For the American mines, the results of this struggle turned out to be tragic. In 1982, the production of iron ore in the US declined compared with 1981 from 73.4 million tons. Up to 36 mln.t. Through a tremendous growth in labor productivity, lower wages and tariffs for electricity, pushing tax breaks and reducing operating costs, the crisis has been overcome. As a result, the US iron-ore mines reduced their production by 1/3, were forced to cut costs by 30% and reduce prices by 42%. The share of mines belonging to steelmaking companies fell from 75% to 63%.
In fact, the collapse of the steel market has led to increased competition in the iron ore market, in Western Europe, France in the 1980s. Practically curtailed the extraction of iron ore. Prices for iron ore fell to the end of the 80-ies. From the producers of iron ore, huge efforts were required to survive in such conditions. In Canada, Sweden and the US, labor productivity growth in the industry in the 80’s exceeded 100%, while in the 70s it remained unchanged. In South Africa, labor productivity in the 80’s increased by 50%.
Largely due to the growth of labor productivity these countries managed to maintain their position in the iron ore market. The French iron ore industry was in decline long before the crisis of the early 70’s. The fact is that the content of iron in French ore (31.4%) was half that of the other largest producers (61.7%). In Germany and Great Britain, the fields were close in quality to the French, but both countries essentially turned the industry in the 60s. It is unlikely that France could in any way resist the crisis. Although, for example, in the US, the extraction of iron-poor taconite ores (iron content in these ores is lower than in French) continues to this day. The result of these processes was the centralization of the world market of iron ore, the formation of a unified system of price formation and increased competition.
During the period under consideration, the export of iron ore from Australia and Brazil increased sharply, the share of these countries in world exports of iron ore increased to 62% by 1995.