Major iron ore producers such as Vale won’t be affected by low iron ore prices in the Chinese spot market as much as the smaller ones in Brazil, sources tell SteelOrbis.
“They [the giant ones] have lower production costs. They have more strength to keep the commodity’s price,” one source said. For producers such as MMX, the low prices for the product have been deteriorating their balance sheet. According to a document filed by the company earlier this month in Brazil’s securities exchange commission CVM, iron ore prices decreased from $93/mt in the end of the second quarter (Q2) to $77.75/mt in the same period of third quarter (Q3) of 2014.
“[We had] lower production [in the period] and consequently lower dilution of fixed costs,” MMX said in a statement. In Q3, MMX accumulated a net loss of BRL 86 million ($32.2 million), compared to BRL 1.891 million (709,834) net loss in the previous quarter.
On Monday, Chinese spot prices for iron ore containing 62 percent Fe reached $67.90/mt. But according to on US-based Brazilian iron ore trader, prices for the product in 2015 shouldn’t reach more than $75/mt. “Prices for iron ore [containing 62 percent Fe] should be in a range of FOB $60-75/mt in the first quarter of the next year,” he said, adding the price’s range should be lower than the one observed in 2014. “There should be a 3 percent variation, for more or less.”
The source’s estimates is aligned to a recent forecast of Itau bank, a major Brazilian bank. Earlier this month, the bank downgraded its forecast for the product in 2015 to $70/mt. Citi Bank and JPMorgan also downgranded their expectancy regarding the commodities price in 2015 for less than $80/mt.
$1 = BRL 2.65