New generation Western Australian iron ore 2006–2016 - strategic insights far beyond the Pilbara?

L. Barrere, Allan Trench, John Sykes, Rhys Samuel Davies

Research output: Chapter in Book/Conference paperConference paper

Abstract

Western Australia (WA), alongside Brazil, has remained at the forefront of the global seaborne traded iron ore market for over 40 years. Despite this apparent stability and strong market
position, WA continues to face strong external international supply-side competition, mainly from Brazil, but also periodically from often marginal, non-traditional sources of iron ore. Additionally, WA iron ore supply has undergone signifi cant decadal change internally, both of an evolutionary
(brownfi elds expansion) and revolutionary nature (major new greenfi elds projects). Since 2006, a new generation of WA-focused iron ore explorers, developers and producers have emerged.
The majors, BHP Billiton and Rio Tinto, have expanded mine production to record levels and the Roy Hill project is now approaching nameplate capacity. Fortescue Metals Group (FMG)
is, however, the largest new market entrant of the last decade, delivering upon their vision of becoming the ‘new force in iron ore’. Unlike most of the other new WA market entrants, FMG’s
operations are substantive. Most of the other smaller, new WA iron ore miners have struggled
during the period of falling prices, though it is worth noting that collectively they have made a material supply-side impact during the price boom – typical of marginal supply. Finally there have
been some contributions from new magnetite projects, however, the delivery and economics of these projects have not met expectations.
In this paper, we touch briefl y upon the key global market changes of the last decade, namely China-driven demand growth and the changes to the pricing mechanisms for iron ores – before
reviewing the rise in WA iron ore supply in response to these markets. We fi nish by focusing on the most signifi cant WA-focused supply-side development of the last decade, the rise of FMG as a major new supplier and the strategic situation that facilitated its rise. The unprecedented China-led rise in iron ore prices felled many traditional barriers to market entry into an oligopolistic industry, allowing many new market entrants (in WA and around the world). However, the downturn in iron ore prices resurrected these barriers to entry, with only FMG (thus far) breaking the entry barrier with signifi cant scale. Diffi cult corporate decisions have been forced upon the smaller WA
iron ore miners who, in some cases, will now struggle to further expand, or indeed continue to operate in the longer run.
The changes that have taken place over the last decade of WA iron ore production hold insights for other emergent mineral commodity exports from the state. Successful market entry, even when industry barriers are high, does not always require an immediate low-cost production assumption alongside a strong balance sheet. FMG could see a new market, within an established commodity market, target an appropriate and new product at it, overcome temporarily-felled barriers to entry in infrastructure and fi nance, then innovate and aggressively cut costs ensuring it was behind the barriers to entry when they rose again after the price boom.
Original languageEnglish
Title of host publicationIron Ore 2017
Place of PublicationCarlton, Vic.
PublisherAustralasian Institute of Mining and Metallurgy
Pages375-386
Number of pages12
Volume3/2017
ISBN (Print)9781925100594
Publication statusPublished - 2017
EventIron Ore 2017 - Perth, Australia
Duration: 24 Jul 201726 Jul 2017
http://www.ironore.ausimm.com.au/

Conference

ConferenceIron Ore 2017
CountryAustralia
CityPerth
Period24/07/1726/07/17
Internet address

Fingerprint

Iron ore
Western Australia
Metals
Supply side
Barriers to entry
New markets
Market entry
Industry
China
Brazil
Balance sheet
New products
Side impact
Global market
Minerals
Entry barriers
Commodity markets
Pricing mechanism
Commodities
Economics

Cite this

Barrere, L., Trench, A., Sykes, J., & Davies, R. S. (2017). New generation Western Australian iron ore 2006–2016 - strategic insights far beyond the Pilbara? In Iron Ore 2017 (Vol. 3/2017, pp. 375-386). Carlton, Vic.: Australasian Institute of Mining and Metallurgy.
Barrere, L. ; Trench, Allan ; Sykes, John ; Davies, Rhys Samuel. / New generation Western Australian iron ore 2006–2016 - strategic insights far beyond the Pilbara?. Iron Ore 2017. Vol. 3/2017 Carlton, Vic. : Australasian Institute of Mining and Metallurgy, 2017. pp. 375-386
@inproceedings{0d4eb422b0fe483ba05d429231e0bf4a,
title = "New generation Western Australian iron ore 2006–2016 - strategic insights far beyond the Pilbara?",
abstract = "Western Australia (WA), alongside Brazil, has remained at the forefront of the global seaborne traded iron ore market for over 40 years. Despite this apparent stability and strong marketposition, WA continues to face strong external international supply-side competition, mainly from Brazil, but also periodically from often marginal, non-traditional sources of iron ore. Additionally, WA iron ore supply has undergone signifi cant decadal change internally, both of an evolutionary(brownfi elds expansion) and revolutionary nature (major new greenfi elds projects). Since 2006, a new generation of WA-focused iron ore explorers, developers and producers have emerged.The majors, BHP Billiton and Rio Tinto, have expanded mine production to record levels and the Roy Hill project is now approaching nameplate capacity. Fortescue Metals Group (FMG)is, however, the largest new market entrant of the last decade, delivering upon their vision of becoming the ‘new force in iron ore’. Unlike most of the other new WA market entrants, FMG’soperations are substantive. Most of the other smaller, new WA iron ore miners have struggledduring the period of falling prices, though it is worth noting that collectively they have made a material supply-side impact during the price boom – typical of marginal supply. Finally there havebeen some contributions from new magnetite projects, however, the delivery and economics of these projects have not met expectations.In this paper, we touch briefl y upon the key global market changes of the last decade, namely China-driven demand growth and the changes to the pricing mechanisms for iron ores – beforereviewing the rise in WA iron ore supply in response to these markets. We fi nish by focusing on the most signifi cant WA-focused supply-side development of the last decade, the rise of FMG as a major new supplier and the strategic situation that facilitated its rise. The unprecedented China-led rise in iron ore prices felled many traditional barriers to market entry into an oligopolistic industry, allowing many new market entrants (in WA and around the world). However, the downturn in iron ore prices resurrected these barriers to entry, with only FMG (thus far) breaking the entry barrier with signifi cant scale. Diffi cult corporate decisions have been forced upon the smaller WAiron ore miners who, in some cases, will now struggle to further expand, or indeed continue to operate in the longer run.The changes that have taken place over the last decade of WA iron ore production hold insights for other emergent mineral commodity exports from the state. Successful market entry, even when industry barriers are high, does not always require an immediate low-cost production assumption alongside a strong balance sheet. FMG could see a new market, within an established commodity market, target an appropriate and new product at it, overcome temporarily-felled barriers to entry in infrastructure and fi nance, then innovate and aggressively cut costs ensuring it was behind the barriers to entry when they rose again after the price boom.",
author = "L. Barrere and Allan Trench and John Sykes and Davies, {Rhys Samuel}",
year = "2017",
language = "English",
isbn = "9781925100594",
volume = "3/2017",
pages = "375--386",
booktitle = "Iron Ore 2017",
publisher = "Australasian Institute of Mining and Metallurgy",
address = "Australia",

}

Barrere, L, Trench, A, Sykes, J & Davies, RS 2017, New generation Western Australian iron ore 2006–2016 - strategic insights far beyond the Pilbara? in Iron Ore 2017. vol. 3/2017, Australasian Institute of Mining and Metallurgy, Carlton, Vic., pp. 375-386, Iron Ore 2017, Perth, Australia, 24/07/17.

New generation Western Australian iron ore 2006–2016 - strategic insights far beyond the Pilbara? / Barrere, L. ; Trench, Allan; Sykes, John; Davies, Rhys Samuel.

Iron Ore 2017. Vol. 3/2017 Carlton, Vic. : Australasian Institute of Mining and Metallurgy, 2017. p. 375-386.

Research output: Chapter in Book/Conference paperConference paper

TY - GEN

T1 - New generation Western Australian iron ore 2006–2016 - strategic insights far beyond the Pilbara?

AU - Barrere, L.

AU - Trench, Allan

AU - Sykes, John

AU - Davies, Rhys Samuel

PY - 2017

Y1 - 2017

N2 - Western Australia (WA), alongside Brazil, has remained at the forefront of the global seaborne traded iron ore market for over 40 years. Despite this apparent stability and strong marketposition, WA continues to face strong external international supply-side competition, mainly from Brazil, but also periodically from often marginal, non-traditional sources of iron ore. Additionally, WA iron ore supply has undergone signifi cant decadal change internally, both of an evolutionary(brownfi elds expansion) and revolutionary nature (major new greenfi elds projects). Since 2006, a new generation of WA-focused iron ore explorers, developers and producers have emerged.The majors, BHP Billiton and Rio Tinto, have expanded mine production to record levels and the Roy Hill project is now approaching nameplate capacity. Fortescue Metals Group (FMG)is, however, the largest new market entrant of the last decade, delivering upon their vision of becoming the ‘new force in iron ore’. Unlike most of the other new WA market entrants, FMG’soperations are substantive. Most of the other smaller, new WA iron ore miners have struggledduring the period of falling prices, though it is worth noting that collectively they have made a material supply-side impact during the price boom – typical of marginal supply. Finally there havebeen some contributions from new magnetite projects, however, the delivery and economics of these projects have not met expectations.In this paper, we touch briefl y upon the key global market changes of the last decade, namely China-driven demand growth and the changes to the pricing mechanisms for iron ores – beforereviewing the rise in WA iron ore supply in response to these markets. We fi nish by focusing on the most signifi cant WA-focused supply-side development of the last decade, the rise of FMG as a major new supplier and the strategic situation that facilitated its rise. The unprecedented China-led rise in iron ore prices felled many traditional barriers to market entry into an oligopolistic industry, allowing many new market entrants (in WA and around the world). However, the downturn in iron ore prices resurrected these barriers to entry, with only FMG (thus far) breaking the entry barrier with signifi cant scale. Diffi cult corporate decisions have been forced upon the smaller WAiron ore miners who, in some cases, will now struggle to further expand, or indeed continue to operate in the longer run.The changes that have taken place over the last decade of WA iron ore production hold insights for other emergent mineral commodity exports from the state. Successful market entry, even when industry barriers are high, does not always require an immediate low-cost production assumption alongside a strong balance sheet. FMG could see a new market, within an established commodity market, target an appropriate and new product at it, overcome temporarily-felled barriers to entry in infrastructure and fi nance, then innovate and aggressively cut costs ensuring it was behind the barriers to entry when they rose again after the price boom.

AB - Western Australia (WA), alongside Brazil, has remained at the forefront of the global seaborne traded iron ore market for over 40 years. Despite this apparent stability and strong marketposition, WA continues to face strong external international supply-side competition, mainly from Brazil, but also periodically from often marginal, non-traditional sources of iron ore. Additionally, WA iron ore supply has undergone signifi cant decadal change internally, both of an evolutionary(brownfi elds expansion) and revolutionary nature (major new greenfi elds projects). Since 2006, a new generation of WA-focused iron ore explorers, developers and producers have emerged.The majors, BHP Billiton and Rio Tinto, have expanded mine production to record levels and the Roy Hill project is now approaching nameplate capacity. Fortescue Metals Group (FMG)is, however, the largest new market entrant of the last decade, delivering upon their vision of becoming the ‘new force in iron ore’. Unlike most of the other new WA market entrants, FMG’soperations are substantive. Most of the other smaller, new WA iron ore miners have struggledduring the period of falling prices, though it is worth noting that collectively they have made a material supply-side impact during the price boom – typical of marginal supply. Finally there havebeen some contributions from new magnetite projects, however, the delivery and economics of these projects have not met expectations.In this paper, we touch briefl y upon the key global market changes of the last decade, namely China-driven demand growth and the changes to the pricing mechanisms for iron ores – beforereviewing the rise in WA iron ore supply in response to these markets. We fi nish by focusing on the most signifi cant WA-focused supply-side development of the last decade, the rise of FMG as a major new supplier and the strategic situation that facilitated its rise. The unprecedented China-led rise in iron ore prices felled many traditional barriers to market entry into an oligopolistic industry, allowing many new market entrants (in WA and around the world). However, the downturn in iron ore prices resurrected these barriers to entry, with only FMG (thus far) breaking the entry barrier with signifi cant scale. Diffi cult corporate decisions have been forced upon the smaller WAiron ore miners who, in some cases, will now struggle to further expand, or indeed continue to operate in the longer run.The changes that have taken place over the last decade of WA iron ore production hold insights for other emergent mineral commodity exports from the state. Successful market entry, even when industry barriers are high, does not always require an immediate low-cost production assumption alongside a strong balance sheet. FMG could see a new market, within an established commodity market, target an appropriate and new product at it, overcome temporarily-felled barriers to entry in infrastructure and fi nance, then innovate and aggressively cut costs ensuring it was behind the barriers to entry when they rose again after the price boom.

M3 - Conference paper

SN - 9781925100594

VL - 3/2017

SP - 375

EP - 386

BT - Iron Ore 2017

PB - Australasian Institute of Mining and Metallurgy

CY - Carlton, Vic.

ER -

Barrere L, Trench A, Sykes J, Davies RS. New generation Western Australian iron ore 2006–2016 - strategic insights far beyond the Pilbara? In Iron Ore 2017. Vol. 3/2017. Carlton, Vic.: Australasian Institute of Mining and Metallurgy. 2017. p. 375-386