The pain for local iron ore miners is showing no sign of healing anytime soon as the commodity’s price sinks quickly toward $US45 a tonne.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US46.70 a tonne, down 4.9 per cent from its prior close of $US49 a tonne. The figure is a record low since The Steel Index began releasing the data in 2008 and the lowest level seen since 2005-06 when miners used to set yearly benchmark contracts with Chinese steelmakers.
Iron ore has lost over 10 per cent of its value in a week in a withering sell-off that marks among the worst since the bear market began over 12 months ago.
The recent falls have turned the spotlight on Fortescue Metals Group (FMG), which has flirted with six-year lows during the current run of red sessions as the iron ore price slips below its break-even price for production.
Smaller iron ore rivals, Mt Gibson Iron, BC Iron and Atlas Iron, are also facing intense scrutiny as the price continues its descent to the detriment of stock prices.
The falls have stoked a bitter fight within the industry over the actions of mining heavyweights, with several mid-tier miners hitting out at the production plans of BHP Billiton and Rio Tinto, in particular.
However, BHP iron ore boss Jimmy Wilson has again defended the miner, arguing its plans to lift supply are not about driving the price lower.
“We don’t like the iron ore price going down by any means,” he told The Australian.
“We would prefer the iron ore price to be higher, but we have to accept the inevitability of the fact that demand has flattened.
“At the end of the day we are in a commodity business which goes through commodity cycles.
“I didn’t hear too many people complaining when the price was going up, but certainly there’s a lot more complaining when it’s coming down.”
As signs of rising supply fail to fade, several analysts are now predicting a fall to $US40 a tonne or below in coming months, which would further stretch mid-tier and junior miners.
Also bearish is renowned economist Ross Garnaut, who has said that steel production in China likely peaked last year, with iron ore prices to be further hit by softening demand if miners don’t scale-back their plans.
“The price trend is down until enough of the old or new supply capacity has been destroyed to balance the decline in demand,” Professor Garnaut told Foarfax Media.
While miners are feeling the heat, Treasurer Joe Hockey would also be feeling the strain as assistant treasurer Josh Frydenburg has recently declared a $US10 drop in iron ore prices hits budget revenues to the tune of $10 billion.
The most recent official government pricing expectations for the budget came in at $US60 a tonne, which means the downside is significant.
Source: The Auastralian
- metaljunction »
- Metal News
Metal News & Events
METALJUNCTION PUBLICATIONS
Coal Insights (English) Monthly
Coal Insights is a ready reckoner for anyone associated with coal. This publication is aimed at tracking everything related to coal in India.
India Coal Market Watch(English) Monthly
ICMW is a one-stop source for all news, data and research pertaining to coal demand, consumption, stocks, spot- and long-term prices with respect to the Indian Market.
India Steel Market Watch (English) Monthly
ISMW is a brand new high-end steel market report, covering all aspects of the steel industry in India.
Steel Insights(English) Monthly
Steel Insights delves into various facets of the domestic and global steel industry such as market fundamentals, raw material price trends, price forecasts etc.