Major iron ore producers around the world are consuming their reserves faster than they can replace them. Meanwhile, the cost and complexity of replacing these reserves are increasing. The quality of some alternative resources is also declining, putting further pressure on margins and product realities. These are the key findings of a report titled "Analysis of Iron Ore Reserves Depletion and Replacement" published by Wood Mackenzie.
Depletion of Reserves and Replacement Rates
Between the financial years 2016 and 2025, six major iron ore producers have collectively reduced their salable reserves by 11.1 billion tons. However, only three of them have been able to replace what they have extracted during this period. The net replacement ratios among this group have varied from 28% to 159%, reflecting differences in reserve conversion, capital allocation, and operational disruptions.
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Rising Costs and Pressure on Margins
C1 cash costs have risen sharply since the financial year 2016, nearly doubling for some producers. As iron ore resources mature, more waste material must be moved to access the same volume of iron ore. This trend reflects the natural progression of mine maturity and is expected to continue. Cash margins, which peaked in the financial year 2021, have since been under pressure from cost inflation. By the financial year 2025, margins in this group are expected to decrease to around $50 to $60 per ton.
The quality of iron ore reserves is also facing challenges. While the overall quality of reserves has remained largely stable, its composition is changing. Wood Mackenzie's analysis shows that the grade of reserves in some groups has decreased by 1.6% since 2016. Higher-grade materials are increasingly needed to compensate for the depletion of lower-grade resources, while impurity levels, particularly alumina, are rising in some products.
Ultimately, replacing reserves requires more investment. Wood Mackenzie's analysis indicates that the investment intensity for replacing reserves varies among major producers from $2 to $10 per ton of new reserve. This fivefold difference reflects the varying quality of remaining resource lines and operational and regulatory challenges.
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