A move from Brazilian mining giant Vale to trim production from its lower-quality iron ore mines has failed to ignite the downtrodden price of the commodity as an oversupply still looms large in coming years.
At the end of the latest session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US49.40 a tonne, down 1 per cent on the prior session.
The commodity remains comfortably above last week's 10-year low of $US44.10 a tonne, but is still at a level that would have mid-tier producers nervous given most struggle to turn a profit at a price below $US50 a tonne.
On Monday, Vale said it would trim production at its higher-cost mines by 25 million tonnes from this month, though it retained its full-year supply target of 340 million tonnes.
The news is the first sign of one of the big three - Vale, Rio Tinto and BHP Billiton - blinking, though at best it seems new low-cost production from the majors will merely displace a portion of their higher-cost output, with expansion targets untouched for now.
“The curtailment announcement has an immediate impact on market sentiment, but to have a prolonged influence on physical markets and prices, it must actually result in lower supply,” Citigroup said in a report on Tuesday, according to Bloomberg.
Beyond Rio, Vale and BHP, there are also more tonnes slated to come into the market later this year from Gina Rinehart's giant Roy Hill project, with the rising supply not marrying with flagging demand from key customer China.
Source : Business Spectator
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