A director of a junior iron ore miner in
Brazil commented to SteelOrbis that the current strategy of the world’s greatest miners suffers from a loss of coherence.
According to the source, by consistently increasing their mining capacities in the hope that higher production cost miners would have to leave the market, Vale, BHP Billiton and Rio Tinto, among others large miners, have flooded the market and the prices of the ore went down by far more than expected, while the high cost producers did not abandon the market as expected.
“The demand for steel and for iron ore remains high, but overcapacities in both markets have reached historical heights, depressing prices for both steel and iron ore, posing threats to the profitability of such sectors”, the source said, quoting the example of the sinter feed fines exported by Vale from its mines in Carajas, north
Brazil:
“With the iron ore price in the Chinese market at $63/mt and freight from
Brazil to China at $15/mt, Vale is receiving FOB $48/mt for its ore at the port, which coupled to production and logistics costs of $28/mt, leaves the miner with a margin of a mere $20/mt, probably one of the lowest in recent years.”
The source conceded that the downturn of prices is affecting all commodities, such as oil and food products, but in the case of iron ore the scenario is worse due to the increasing mining capacity.