At the beginning of April, the price of 62 percent Fe content iron ore declined to $47/mt CFR Qingdao, the lowest level recorded in the last 10 years. This week iron ore prices have been in the range of $47-48/mt CFR Qingdao, while market players are concerned by the low levels of prices.
Moreover, the low levels of iron ore have heaped additional pressure on small miners. An iron ore producer in Labrador, Canada has announced that it has canceled the labor contracts of 150 of its employees as iron ore prices are expected to continue their downtrend. Meanwhile, Australian iron ore producer Atlas Iron Ore has announced that it will cut its production gradually throughout April and then terminate its export activities.
Additionally, the China Iron and Steel Association (CISA) published a report recently saying that, despite the rising iron ore supply in the global markets, no improvement in the local Chinese iron ore prices is expected due to insufficient demand in the market. While China's national economic growth target for the current year as seven percent, the lowest level since 2009, the Chinese government has announced a series of stimulus packages for the housing sector, though CISA officials believe that these measures will not be sufficient to boost iron ore prices.
Meanwhile, market players were wondering if the Chinese government would make a move to protect local iron ore producers which have been under great pressure due to decreasing iron ore prices. Following the drop in prices to $47/mt CFR China, China's State Council decided on April 8 to cut the resource tax on iron ore from 80 percent to 40 percent, effective from May 1 this year. The 80 percent resource tax was one of the highest resource tax rates worldwide. In fact, in Australia, which has a 35 percent of share in the global iron ore production of 2 billion metric tons in 2014, the government applies only eight percent duty on iron ore production. Looking at the current situation in the global iron ore market, the main reasons for the sharp price declines have been the investments in low-cost iron ore production by major miners, China's economic slowdown, measures to cut China's steel production capacity, the strengthening of US dollar against the Australian dollar and the Brazilian real which have favored the export activities of Brazilian and Australian iron ore producers. Thus, looking at the general situation, the reduction of the resource tax from 80 percent to 40 percent is giving hope to some Chinese domestic miners, but is not expected to help prevent further declines in iron ore prices.