Competition in iron ore market will heat up

After falling below the $60/mt threshold on March 5, last week the prices of 62 percent Fe content iron ore mostly trended sideways with slight declines and closed the week at $58/mt CFR China. Following the U.S. Energy Information Administration’s (EIA) announcement on March 18 of oil stocks being above the expected levels, crude oil prices declined to $42/mt, the lowest level in six years. With falling oil prices impacting on production costs, decreasing trend in iron ore prices accelerated. On March 18, the price of 62 percent Fe content iron ore declined by 5 percent to $54.5/mt for delivery to the Chinese port of Qingdao, the lowest level since the first half of 2009. Since the beginning of March, iron ore prices have decreased by 15 percent, while they have declined by 60 percent compared to the beginning of 2014, revealing the velocity of the downward trend of iron ore prices. Most market players believe that the decreasing trend in prices will continue. They also state that iron ore prices will likely to decline to $50/mt threshold in the short term. Small iron ore producers with higher production costs have come under downward pressure from the sharp declines in iron ore prices. Recently some small Australian iron ore mines have announced they will cut their labor force, while one iron ore mine in west Australia has announced that it had cut 15 percent of it labor force due to falling iron ore prices and worsening market conditions. With the continuing declining trend in iron ore prices, more small iron ore mines will certainly decide to downsize their business.

Australian mining company BHP Billiton and Rio Tinto’s statement of a plan to extend their productions in the coming period still reflects on the market. Market players believe that this plan accelerates the fall in iron prices and harms the Australian economy. Moreover, Australia-based Roy Hill Holdings’ Roy iron ore mine project in west Australian region Pilbara which was found four years ago in cooperation with China Steel Corporation (CSC), the largest steel producer in Taiwan, and the South Korean steel producer POSCO, is expected to be completed in the end of 2015. The company’s officials have recently stated that there is no concern according to implementation of the plant despite the falling iron ore prices, while the first shipments are planned for September. Roy Hill project is an integrated plant with low-cost and 55 million mt prime quality iron ore capacity for exports. After the complementation of this investment competition between the four major producers will certainly heat up and the declining trend in iron ore prices will accelerate further with the support of current oversupply.

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