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Prospects for the 2020 Iron Ore Market.Quantitative Analysis of Market Dynamics and Risk Mitigation Strategies

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  • Bielitza, Marc P.

Abstract

As the key ingredient for steelmaking, iron ore is integral to the global economy and represents the world's second-largest natural resource market by value. The overall structure and dynamics of the iron ore market have recently undergone various radical changes. The global demand shock caused by the rapid industrialization of China has sent market prices skywards and triggered a collapse of the 40-year-old benchmark pricing system. The newly adopted quarterly index-based pricing mechanism has brought an abrupt end to the traditional stability of the iron ore market, with price dynamics now experiencing greater volatility. Against the backdrop of these disruptive changes, this dissertation proposes a deterministic nine-region spatial equilibrium model of the 2020 iron ore market based on the fundamental characteristics and mechanics of the market. Key features of the model are its bottom-up structure, modeling supply volumes and costs on an individual mine level as well as the simulation of interregional trade flows using a linear optimization approach. In analyzing a number of relevant scenarios, this dissertation projects the key characteristics of the 2020 global iron ore market in terms of regional production volumes, demand, iron ore trade flows and market prices. It quantifies market dynamics based on changes in available production capacity, demand and freight rates. From a demand perspective, the dissertation proposes several strategies to mitigate the risk arising from higher and more volatile iron ore prices. Of these strategies, the captivity of mines and the introduction of iron ore export taxes are analyzed in greater detail with respect to their effectiveness and influence on the iron ore market.

Suggested Citation

  • Bielitza, Marc P., 2012. "Prospects for the 2020 Iron Ore Market.Quantitative Analysis of Market Dynamics and Risk Mitigation Strategies," Books, Rainer Hampp Verlag, edition 1, number 9783866186798.
  • Handle: RePEc:rai:rhbook:9783866186798
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    File URL: https://www.buchhandel.de/buch/9783866187795
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    More about this item

    Keywords

    iron ore; mining; steel; steelmaking; China; market simulation; industry cost curve; pricing; linear opti-mization; trade flows; market dynamics; volatility; risk; freight; captivity; export taxes;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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