The price of iron ore, which has lost 35 per cent this year to levels around the $US87 a tonne mark, has further to fall, according to analysts at CLSA.
The firm's Shanghai-based analyst Ian Roper said in a note this week that $US75 a tonne can be expected in the back half of next year as fresh supplies come online and demand in China continues to falter.
Such a drop in the price would put pressure on Australian mid-tier miners such as Atlas Iron, which has a breakeven price in the low $US80 range. Meanwhile, Fortescue Metals Group and BC Iron would also face stress, with breakevens of around $US70 a tonne, according to recent UBS analysis.
Mining giants BHP Billiton and Rio Tinto, however, will still be making money as their market-leading cost structures leave them turning a profit until prices sink below $US50 a tonne, or further.
The CLSA report represents a revision to Mr Roper’s forecasts, with previous expectations for next year sitting at $US80 a tonne.
“The oversupply situation is only going to worsen over the next few years,” he said.
The comments come as the iron ore price dipped to a fresh two-year low of $US86.70 a tonne overnight, equal with lows reached in September 2012. Should the price fall any further, iron ore will be at its lowest mark since October 2009.
Meanwhile, Beijing is believed to be heightening pressure on mining companies as Chinese iron ore producers come under renewed stress thanks to the supply expansions from the likes of BHP, Rio Tinto and Vale.
According to various media reports, BHP’s China boss Chai Tan met with the National Development and Reform Commission (NDRC) last week, during which the NDRC reportedly labelled the current iron ore pricing model “problematic”.
“We should look for a new pricing model at a time when there are changes in the supply-demand dynamic and iron ore prices are entering a downward spiral,” NDRC deputy inspector Li Zhong Juan said, according to The Australian.
Ms Li also warned iron ore suppliers against “abusing dominant market positions”.
It is not the only time Beijing has made stern public statements around iron ore pricing, though normally the comments have come when prices have been rising.
Source: The Australian
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