Australia’s largest iron ore producers are being squeezed by the combination of Chinese steel makers demanding lower iron ore prices and Brazil miners selling at discounted rates to steal market share.
According to the Financial Review Chinese steel mills are attempting to negotiate iron ore prices closer to those on the spot market, where prices have fallen 15 per cent in the past five weeks.
Brazil’s Vale has also indicated it is willing to sell at a 10 per cent discount in order to undercut prices from Rio Tinto, BHP Billiton, and Fortescue Metals Group.
Yesterday China reported a slower than expected GDP rise for the third quarter, with growth coming in at 9.1 per cent.
The result prompted comments from Treasury secretary Martin Parkinson that growth from China was not “pre-ordained”.
Investors backed off iron ore miners following the news yesterday, with FMG falling 9.2 per cent, Atlas Iron down 7.8 per cent, and Rio Tinto shedding more than five per cent.
Despite the news Rio Tinto last week reported strong results for the third quarter, and said it had set records for iron ore sales.
Rio Tinto chief executive Tom Albanese also said despite continuing economic uncertainty he did not expect a downturn in iron ore demand from China.
Xstrata also delivered strong results for the quarter yesterday, and BHP is expected to make a positive report sometime today.
Despite the sharp fall in the spot market for iron ore the price was at $US153.40 this week, which is significantly higher than last year’s average of $US135.