Several television shows and some dailies, between 2016 and 2017, have got me worried. These involved some so-called experts who affirmed, without restraint and without numerical analysis, that from the exports of phosphate, and / or iron ore in their crude or semi-crude condition, or cement, the country might earn sufficient revenues. Could Algeria currently facing low oil prices, rely on the myth of raw materials as a miracle for development be a real palliative for its incomplete run for its economy diversification.
Unconsciousness or demagoguery? Why then mislead both public opinion and policymakers?
To avoid the myth of raw materials as a miracle solution for development as I have had to demonstrate on several occasions, particularly in my latest Algeria and Its Illusory Raw Material Annuity, for phosphate mining exploitation, all depends on marketing within all environmental constraints, the country’s internal strategic management, etc. The ore’s content, hence key factor determining the cost of exploitation. The growth of the global economy, being by far the greatest influencing factor is expected to experience a significant change in its structure with the advent of the fourth economic and social revolution between 2020 and 2040. The purpose of this contribution is to analyze the case of iron mining.
The case of iron mining in Algeria
For iron, global reserves are valued by international agencies at 85 billion tons (MT). Algeria not quoted in international statistics has, according to Algerian data, reserves (exploitable deposits) that vary between 1500 and 2000 MT, a minister having given the figure of 2500 MT on December 5th, 2015.
World iron production amounts to 3.32 billion MT, and by far, China is the first producer, followed by Australia and Brazil. China however on its on concentrates about 50% of the steel market, both in terms of supply and demand. The price of iron ore fluctuates and in February 2018, the price of iron was $77 per ton. If we stick to the statistics of the European Union in terms of imports, and reported last April 2018, the prices have evolved as follows: $100 per MT in January 2009, $140 in January 2012, $102 in January 2013, $116 in January 2014, $70 in January 2015, $58 in January 2016.
SCOTIA, a Canadian Bank, which specializes in the evolution of commodity prices, provides, in a business note dated July 6, 2016, an international price between $48 and $50 /MT for 2018, depending on the revival of China’s economy, whose steel mills absorbed 70% of the world’s iron ore demand between 2014 and 2017.
With iron ore going at $60 /MT, exports of 3 million of MT/year, giving a turnover of $180 million to which must be subtracted 40% of charges, would leave $108 million to share following the 49/51% rule, between all partners, leaving less than $55 million for Algeria.
With exports of 30 million MT/year, the net profit for Algeria would not exceed $600 million/year. It is that the exploitation of the iron of Gara Djebilet will require large investments estimated by the government in 2013 to about $15 billion in power plants, transport networks, rational use of water, resolution of the remoteness issue of supply sources, environmental protection measures and, above all, all human resources required training.
Only processing into products can therefore provide a higher value added to exports. If we take a few products, with a high added-value, controlled by a few multinational firms, from both the technological and commercial point of view, we have the following prices fluctuations.
- In February 2018, copper was established at $7,007 per ton, down 0.8% over a month and up 17.9% over a year. At the end of April 2018, the price of copper per kilo was $7.01.
- In February 2018, the price of stainless steel that depends on various alloys including carbon, chromium and nickel can fluctuate between $2,000 and $2,500 per ton.
- The price of aluminum was $2,182 per ton, down 1.3% over one month and up 17.3% over one year.
- In February 2018, the price of lead was $2,581 per ton, down 0.1% over one month and up 11.7% over one year.
- In February 2018, the price of zinc was $3,533 per ton, up 2.7% over one month and up 24.2% over one year.
In March 2018, the price of all metal ground scrap (type E40) averaged €285 per ton, up 6% over a month and down 33% on a Year. For the Price of steel is very fluctuating and was $620 per tonne on July 22, 2016 compared to $580 per tonne on July 19, 2016. In April 2018, the price of steel in average, is established to $857 per ton. The prices of the different categories of steel, are for the MM20 steel at $816 / ton, the MM50 at $750 / ton and the MM100 at about $635 / ton.
In the meantime, steel imports costed Algeria in 2016, around $10 billion a year due to mainly its growing domestic demand from a drive to modernize infrastructures coupled with engaging into developments of subsidized housing schemes. In fact, Algeria imports most of the goods it needs due to insufficient domestic production caused by a lack of investment in its non-energy industries, including of course mining of all those abundant and near the surface resources.
In summary, far from being or sounding utopian, it was in 2017 and certainly is still for 2018, the case of all hard currency inflows come, whether directly or indirectly and for 97/98% from only hydrocarbons and their derivatives. Non-hydrocarbon exports would be conditioned by profound structural reforms that far from the Keri vision, would certainly not be a matter of administrative decisions, but rather of the adopting of all necessary policies that would enable the setting up and running of competitive productive companies in terms of, amongst many things, optimal cost/quality ratios, etc. Within this context, it must be mentioned that from inception, negotiations, maturation, and finally realization and up to its gaining some cruising speed, a project would require in Algeria a minimum of five years.
That is definitely too long, even if in this day and age, heavy mining cum industrial undertakings are still onerous and weighty to come along. Due to their oligopolistic structure, for the mining industry, the only solution is a win/win partnership with reputable firms that could find it difficult to accept the restrictive rule of 49/51% with its unnecessarily bureaucratic burdens; flexibility and real-time decisions being the rule in international trade rather the exception. Ademmebtoul@gmail.com