Fortescue Metals chief executive Nev Power has downplayed suggestions that the current oversupply in the iron ore market was the direct result of a strategy by a trio of mining majors, but has warned that persistent falls in the commodity price are unlikely to be stemmed any time soon.
In an interview with Business Spectator's KGB, Mr Power said the current glut of iron ore has more to do with "all of the capacity that’s been invested in over the last couple of years coming into the market in a very short space of time", rather than a deliberate plan to drive high-cost producers, particularly high-cost Chinese producers, out of business.
"I think this has been a well-forecast and telegraphed plan that low-cost iron ore producers such as ourselves have been expanding capacity to fill the gap in supply that was left when the Chinese demand accelerated," he said.
"What’s happening now is the new low-cost, seaborne supply has come into the market, but we’re seeing a delay in how quickly the high cost production exits."
Mr Power said the "reality of this market" is that the iron ore price will stay low for as long as it takes for that supply-demand balance to be restored.
In the face of a weakening iron ore price -- which recorded another five-year low overnight, trading at $US79.40 a tonne -- mining giants BHP Billiton, Rio Tinto and Vale have ramped up production.
The sustained weakness in the commodity price has been weighing on Fortescue's share price, which yesterday touched its lowest point in well over a year. Fortescue shares slumped as low as $3.47 during yesterday's session, their lowest point since hitting $3.42 on July 15 last year.
While Rio Tinto, BHP and Vale have break-even prices for iron ore of $US42 a tonne, $US51 a tonne and $US60 a tonne respectively, Fortescue has a break-even price of $US72 a tonne.
However, Mr Power is confident the miner can match the titans through a strict focus on productivity and cost-cutting, noting that the miner had brought costs down by 23 per cent in the last twelve months.
"Key to that has been bringing on new low-cost mines that allow us to blend our ores and make the absolute best out of the ores that we have.
"We have some very good, low-impurity ores in the Chichester, which we’re now able to blend with Brockman-style ores from our Solomon Hub to get an advantage in both mines.
"We’ve still got some of that process to go and, in addition to that, we get the normal advantages of being able to run the business productively and efficiently as an overall business."
Mr Power said driving greater efficiency will see Fortescue's costs to continue to come down, noting the miner has set itself C1 cost guidance for this year at $31 a tonne.
Source: The Austalian
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