Australia’s iron ore miners continue to feel the pain of the brutal slump in the price of the commodity, with falls on the local market in early trading.
As the price of iron ore sits on the cusp of falling below $US50 a tonne, Fortescue Metals Group lost almost 2 per cent of its value after the market opened to sit at $1.92, while Atlas Iron’s stock was off 3.85 per cent at 12.5c.
BHP Billiton, the world’s largest miner, was 1.7 per cent lower this morning at $30.50, while its main rival, Rio Tinto, was off 1.28 per cent at $56.60.
Overnight, Chinese iron ore prices monitored by The Steel Index fell $US1.90, or 3.6 per cent, to $US51 a tonne, representing a record low since the index starting monitoring prices.
When current freight prices of about $US4.50 a tonne are removed, it is the lowest price Australian iron ore has been sold at since March 2006, when prices were still negotiated annually.
The price could face a fresh round of negative news today, with China’s official manufacturing index data due.
ANZ’s co-head of Australian economics, Felicity Emmett, said yesterday’s decision by Chinese policymakers to relax mortgage down payment requirements failed to arrest the downward momentum in iron ore prices.
“Mills and traders remain sidelined as threats of environmental inspections and speculation that as much as 40 per cent of steel mill capacity is pegged for closure keeps the outlook negative,” she said.
Deutsche Bank and London-based forecaster Capital Economics have joined a list of analysts, including Westpac, ANZ and Citi, in warning that the price of iron ore could fall below $US50 a tonne.
Deutsche Bank slashed its forecasts, projecting a retreat below $US40 a tonne before any recovery. The bank’s analysts also said prices would average $US51 a tonne this year, a 25 per cent downward revision to their previous expectations.
Deutsche’s Paul Young said headwinds were unlikely to dissipate over the next two quarters unless there were production cuts and Chinese monetary and fiscal easing.
“We now forecast flat steel production growth in China with apparent steel demand negative for a second year in a row,” he said.
Iron ore prices, which are down 28 per cent this year and 62 per cent since the start of 2014, are being crushed under the pressure of a wave of new supply from boomtime expansions by Fortescue, BHP and Rio Tinto, combined with surprisingly low steel output from China this year.
As the price threatens to slip below $US50 a tonne and Andrew “Twiggy” Forrest calls for production restraint, his Fortescue Metals Group and BHP Billiton have each applied for West Australian government approval to boost iron ore output.
In separate applications to the West Australian Environmental Protection Authority in recent weeks, the pair have put in applications to build new Pilbara region iron ore mines.
The applications are to replace mines that will shortly run out, but they contain requests for permission to mine a combined 50 million tonnes of extra iron ore a year, which is more than the production from Gina Rinehart’s under-construction $10 billion Roy Hill mine.
Deutsche’s Mr Young said Fortescue remained in a “very” tough position with the falling iron ore price outpacing the fall in costs and capex.
“The recent failed debt refinancing where the company was looking to repurchase the three senior unsecured notes and extend the maturity of the US$4.9b senior secured note means that FMG will now have to make take additional steel mill prepayments, defer existing prepayments, or possibly sell a stake in their mines or even raise equity if the iron ore price drops below $US50 a tonne for a sustained period of time in our view.
Source: The Australian
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