London-based Roskill Information Services says Rio’s grab for control of North’s key twin iron ore assets – 53% of Robe River Iron Associates and 56% of Iron Ore Company of Canada – means that it, Compania Vale do Rio Dolce of Brazil and BHP now effectually have a market oligopoly.

While much attention has been paid to the Rio takeover bid, CRVD, the world’s largest iron ore producing and exporting company, was another to grow in size this year. It cemented its position at the top of the production tree by purchasing Brazilian producers Samitri and Socoimex.

Furthermore, CVRD now jointly owns other Brazilian iron ore capacity, including a 50% share in the Samarco operation through its holding in Samitri.

The big multi-nationals are throwing their corporate weight around to ensure they are in place to enjoy the turnaround in world steel demand, which started in the second half of last year. By 2005 steel demand is expected to rise to 883 million tonnes per annum.

“The importance of steel as an end use means that developments in the steel making process have a significant impact on the form in which iron ore is produced,” Roskill said in its fourth edition of “The Economics of Iron Ore”

“The proportion of world steel output produced by electric arc furnaces, as opposed to basic oxygen furnaces, has grown substantially over the past 20 years.

“In 1998, EAFs accounted for around a third of world steel production compared to about a quarter in 1983. The proportion of steel produced by EAFs is expected to continue to increase for the foreseeable future as new technologies allow operators of EAFs to enter new markets and reduce production costs.”

Since electric arc furnaces use scrap steel or directly reduced iron as feedstock instead of pig iron, DRI output is increasing in line with EAF steel production.

In 1999, world production of DRI and hot briquetted iron reached 38.6Mtpa, an increase of 4.3% on the previous year. A further 8.68Mtpa of new DRI/HBI capacity is entering service, under construction or planned by 2003.

According to “The Economics of Iron Ore”, the expected rise in DRI/HBI production will boost demand for DR pellet. In the short term, increased demand for DR pellet can be met by reactivating idled capacity.

However, as DRI production capacity continues to expand, the consequent shortage of DR pellet will exert upward pressure on prices, and may lead to the construction of new DR pellet production capacity.