Australia’s struggling junior iron ore miners have received more bad news, with China announcing plans to prop up its own industry.
China’s State Council, or cabinet, says the government will reduce the existing resource tax on iron ore by 40 per cent, without giving further details.
In moves to reduce business costs and support the economy, Beijing will also cut power prices.
Iron ore miners in China are among the highest-cost producers still in operation, with many tipping supplies from the country to be cut as prices collapse.
While the iron ore tax cut — worth about $A1.27 a tonne — would not make high-cost domestic Chinese miners profitable, it is being viewed as a significant indicative step to protect its own state-owned industry at the expense of foreign miners.
Australia’s miners have long been predicting and hoping for mass exits by uncompetitive Chinese miners.
Chinese iron ore producers have come under increasing strain from the collapse in prices, amid a crippling oversupply. They are unable to compete with the cost structures of sector heavyweights Vale, Rio Tinto and BHP Billiton.
Nor are many junior Australian miners.
Atlas Iron has suspended trading in its shares and has given itself a fortnight to conduct an urgent review of its finances in response to the a plummeting iron ore price, which is down more than 60 per cent from a year ago.
Overnight, after a second straight positive session, the price of iron ore edged back toward the $US50 mark, despite lingering concerns about oversupply.
Benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US47.90 a tonne, up 0.6 per cent from its prior close of $US47.60 a tonne and more than 2 per cent above its recent low of $US46.70, which marked a record trough since the index began operation in May 2008.
The latest price action has been reminiscent of previous recoveries during the 18-month bear market, with the price often enduring a sharp drop, then bouncing only to fall further after a brief stabilisation period.
Downtrodden miners will be hoping that the latest recovery offers more respite, but analysts remain downbeat as forecasts largely rest in the $US40 to $US50 range.
The muted action on iron ore markets carried through to stock markets as BHP edged down 0.1 per cent in London trade, while Rio gave up 0.3 per cent, largely in line with the fall seen by the broader FTSE 100 index.
Closer to home, Fortescue enjoyed a strong trading session yesterday, surging 8 per cent. Smaller rival Mt Gibson Iron ended flat, while BC Iron lost more than 9 per cent despite a rising broader market.
Source :AAP, Dow Jones, Business Spectator
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