Australia's smaller iron ore producers are under pressure as iron ore slumps to the lowest level in nearly 5 years.
The spot price of iron ore fell to USD 87.30 per tonne this week as Chinese house prices dropped, reducing the demand for steel. That figure was closing in on the USD 86.70 reached in September 2012 and came on top of prices dropping by more than one third this year due to a global oversupply of iron ore and lower steel prices.
Mr Ken Brinsden CEO of Atlas Iron said thst “The company's break even price was around AUD 80 to AUD 85 per tonne. Profit margins had fallen as the iron ore price dropped but said the miner would respond by cutting costs further. Nobody likes to see their margin getting squeezed and we'd say we're falling in that category but we still have headroom in a cashflow sense."
Despite the price decline, Atlas Iron returned to profitability in the 2014 financial year with net profit of AUD 14.3 million as it expanded mine production to a record of nearly 11 million tonnes for the year. The world's fourth biggest iron ore miner, Fortescue Metals Group has lowered its costs as iron ore prices fall.
He said that “I think FMG are in a better position than a lot of the juniors but out of the big four that's BHP, Rio, Vale, Fortescue they have a higher break-even position.”
Mr Daniel Morgan global commodity analyst UBS said that FMG had reduced its cost of production. I think they are in a better position than a lot of the juniors but out of the big four that's BHP, Rio, Vale, Fortescue they have a higher break-even position.
FMG's after tax profit for 2014 jumped by more than half to USD 2.73 billion because it sold more iron ore despite the lower prices. Miners like Fortescue and Atlas usually receive lower prices for their iron ore because it has a lower iron content than the ore produced by BHP Billiton and Rio Tinto.
Gindalbie Metals operates the Karara JV with Chinese steelmaker Ansteel, 200 kilometres from Geraldton in WA's mid west region. Its estimated cost of production stands at around USD 99 per tonne because of its lower quality iron ore, which is more expensive to produce.
Gindalbie's project has been beset by production delays and cost blowouts and it announced AUD 640 million writedown on the Karara project earlier this month because of the fall in the iron ore price and higher than expected Australian dollar.
Mr Morgan said that "The Australian producers are not yet at a level where they would think about things like shutting. The local miners were focused on reducing costs further. You don't tend to see people shut until they've made significant losses for a period of time."
Source – ABC
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