Supply and Demand: Ferrous Metals

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Ferrous metals, metals that contain iron, are distinct from both precious and base metals. They include raw materials like iron ore and steel scrap as well as semi-finished products such as hot rolled coil.

Iron Ore

Iron Ore is found in the earth’s crust and mined from open pits. China is the world’s largest producer, consumer and importer of iron ore, producing 1.3 billion metric tonnes, equivalent to 44% of the world’s output. Australia is the second-largest producer of iron ore and has the world’s largest deposits. Chinese iron ore deposits are of lower iron content than those typically found in Australia and Brazil.

Iron ore is the key ingredient in the steel making process using the blast furnace. The earliest blast furnaces date back to first century in China. In a blast furnace, which is lined with refractory brick, iron ore, coke and limestone are heated to produce liquid iron. Once a blast furnace is started, it will continuously run for years, with only short stops for planned maintenance. The temperature in a blast furnace can reach up to 4200 °F (2300 °C).

Steel is also produced via an Electric Arc Furnace (EAF) using steel scrap. About one-third of the world’s crude steel is made in an EAF. In an EAF, the scrap metal is charged using graphite electrodes to heat the metal. The temperature reaches 6300ºF (3500ºC). In the U.S., steel is typically produced using EAFs rather than blast furnaces.

Steel production using EAFs compared with primary steel production using a blast furnace has some benefits including the ability to use 100% recycled scrap feedstock, thereby being less energy-intensive and the flexibility to start and stop production being more responsive to changes in demand.

Iron Ore Market Fundamentals

Iron ore supply has been increasing over the last 10 years in response to China’s industrialization during the commodity super cycle. To meet China’s demand for iron ore, which is the key ingredient in steel making which is required for construction and white goods, world supply from iron ore mines increased.

This had an impact on the way iron ore was priced. In the decades between the 1960s and the millennium, iron ore prices were stable with plentiful supply. But China’s demand for iron ore caused prices to rise, and miners and steel makers who had traditionally agreed on annual prices following long negotiations, moved to quarterly prices in 2010 and then eventually spot pricing.

Iron ore is transported via ocean freight on capsize vessels. Some of these very large ore carriers have a deadweight capacity of 400,000 metric tonnes.


Steel scrap is collected from recyclable materials left over from product manufacturing and consumption. Scrap collection and supply is responsive to changes in price.

Steel Production

China is the world’s largest steel-producing country representing over half of all crude steel. In 2015 it produced 50.3% of the world’s 1,599.5 million metric tonnes. Japan (105.15 million metric tonnes), India (89.58 million metric tonnes), the United States (78.92 million metric tonnes) and Russia (71.11 million metric tonnes) make up the top five steel producing countries.

Steel Demand

Different types of steel are produced according to the properties required for their application, such as density, strength, thermal conductivity and elasticity. They are broadly categorized into carbon steels, alloy steels, stainless steels and tool steels. Steel is used in construction of bridges, roads, railways and buildings. It is also used in the white goods sector, which includes large electrical goods such as refrigerators and washing machines, named such because they are typically white in color.

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