In the middle of last week, the prices of 62 percent Fe content iron ore declined sharply to $54.5/mt for delivery to the Chinese port of Qingdao and closed the week at this level. In the current week, iron ore prices moved sideways in the range of $54.5-55/mt CFR Qingdao port.
Early this week, Andrew Forrest, chairman of Australian miner Fortescue, stated that the ongoing downward trend of iron ore prices is damaging the country's economy and called on major iron ore producers to implement a production cap to increase iron ore prices. However, this call has failed to gain support from other Australian iron ore producers. Gina Rinehart, owner of Australia-based mining giant HPPL Group, dismissed Forrest's suggestion, while she also said that a decision to cut production in Australia will only cause foreign producers to fill the gap, and so Australian producers should focus on how to cut their production costs instead. Sam Walsh from Rio Tinto said that the statement made by Andrew Forrest was a big mistake. Most market players believe that the statement of Fortescue's chairman was caused by the difficulty the company has in breaking even amid declining iron ore prices.
As mentioned in our previous reports Australian miners BHP Billiton and Rio Tinto are continuing their investments and are focusing particularly on projects to decrease their production costs. These investments are expected to increase the downward pressure on iron ore prices in the coming period and to also put additional pressure on Fortescue. As declines in iron ore prices continue, the competition between the producers will heat up, while prices of 62 percent Fe content iron ore will probably decline to $50/mt CFR Qingdao in the short term.
On the other hand, the downward trend in iron ore prices is still a big threat to small iron ore miners. Yang Jiasheng, the chairman of the Metallurgical Mines Association of China (MMCA), said that the sharp decreases recorded in iron prices left Chinese miners in a difficult position, with the average production capacity rate of the Chinese miners at 20 percent at the end of 2014. He also added that there are 4,037 iron ore mines in China but only three percent of them are considered to be large-scale producers.