After falling below the $60/mt threshold on March 5, last week the prices of 62 percent Fe content iron ore mostly trended sideways but also with slight declines, closing the week at $58/mt CFR China. Following the announcement by the U.S. Energy Information Administration (EIA) on March 18 that oil stocks were 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, the decreasing trend in iron ore prices accelerated. On March 18, the price of 62 percent Fe content iron ore declined by five 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 a massive 60 percent compared to the beginning of 2014. Most market players believe that the decreasing trend in iron ore prices will continue. They also state that iron ore prices will likely decline to the $50/mt threshold in the short term. Small iron ore producers with higher production costs have come under pressure from the sharp declines in iron ore prices. Recently, some small Australian iron ore mines announced they will cut job numbers, while one iron ore mine in Western Australia has announced that it has cut 15 percent of its labor force due to falling iron ore prices and worsening market conditions. With the continuing declines in iron ore prices, more small iron ore mines will certainly decide to downsize their operations.
Plans announced by Australian miners BHP Billiton and Rio Tinto to expand their production in the coming period continue to exert an impact on the market. Market players believe that these plans have accelerated the fall in iron prices. Moreover, the Roy Hill iron ore mine project in the Pilbara region of Western Australia, which was established four years ago in cooperation with Taiwan-based China Steel Corporation (CSC) and South Korean steel producer POSCO, is expected to be completed by the end of 2015. Project officials have recently stated that there are no concerns for implementation of the plant despite the falling iron ore prices, while the first shipments are planned for September. The Roy Hill project will have low costs and an annual capacity of 55 million mt of prime quality iron ore for export. After the completion of this investment, competition between the major ore producers will certainly heat up and the declining trend in iron ore prices will accelerate further due to oversupply.