China’s thriving steel industry looks set to import more iron ore than ever before, according to a new report from AME Mineral Economics. The report goes on to say that China’s iron ore imports in 2002 beat the previous record by around 20 million tonnes and, despite a flagging economy, Japan also increased its imports by almost three million tonnes, posting the second highest level in well over a decade at 120 million tonnes.

The report also shows how the iron ore industry has responded to the rapidly evolving market - and to the long term pressures on prices - by reducing costs and increasing output. Cost reduction forces gained momentum as early as 2000 as the industry’s giants embarked on a major consolidation drive. By 2002 CVRD, Rio Tinto and BHP Billiton had captured more than 70% of seaborne trade, compared with 50% in 1999. This consolidation had a marked effect - during the past two years the big three have reduced costs by 13%, while the other top ten producers shaved an average 8% from their cash production costs.

AME’s analysis indicates that ore transport and port costs continue to be big cost factors for the iron ore industry, In 2002 transport and port costs constituted 52% of the total costs, while the actual mining activities made up only 21%, ore processing 17% and royalties 10%.