Iron ore is the most abundant commodity on Earth. At present, the largest consumer of iron ore in the world is China – and, ironically, China has almost no quality iron ore deposits. China is expected to drive demand for iron ore for many years to come, with other rapidly industrialising nations such as India likely to support this trend.

Iron ore is used almost exclusively in the production of steel. Steel is demand is driven by the construction industry and governmental infrastructure expenditure, as well as by heavy industries such as automobile manufacture. The primary ingredients of steel are iron ore and coking coal, while other commodities such as manganese and ferrochrome are used in smaller quantities to produce steel with differing qualities.

Iron ore is a bulk commodity like coal and some other steelmaking materials, with a low value-to-weight ratio relative to other commodities. As a result transport is key from both a cost and logistics perspective, as transport costs form an appreciable percentage of the total cost of supply of iron ore.

There are three basic types of commercial iron ore:

• Fines (fine powdered iron ore - 70%-80% of world production)
• Lump
• Pellets

Lump and pellets are ‘direct charge’ materials, which means that they can be poured directly into a blast furnace with no further processing, and so trade at a premium to fines. Pellets are more costly to produce, however, but the availability and quality of lump ore is declining worldwide, so the market for pellets is likely to become stronger to compensate.

Ferrexpo produces solely pellets, and is about the 12th largest iron ore producer in the world.