From Credit Suisse comes some good news for iron ore as marginal Chinese iron mines stay closed after winter:
We expect further incremental closures to be forthcoming but do not believe there will be anything resembling a wholesale rush for the exit by domestic miners:
- Not all production is at the top of the cost curve.
- Some mines are captive to mills and, more broadly, mills gain a security of supply benefit from domestic production.
- SOE miners have an incentive structure that rests on more than short-term commercial conditions.
- Costs are flexible, Steelease has already reported that local governments have reduced taxes for some miners.
- Some domestic expansions are still proceeding – FAI in domestic iron ore mining is up 15% ytd.
- In 2009, when prices averaged $80/t, implied 62% Fe production was 326 Mt. Seaborne expansions will not therefore be substituted one-for-one into China and there will need to be both China and ex-China supply discipline, in our opinion.
Yep. CS sees $85 next year. Too high I reckon!
Source: Macro Business