More participants needed to strengthen iron ore industry

A higher level of credible participants on Australia's iron ore scene is needed to drive the spot market and strengthen confidence in the industry, an analyst told MINING DAILY.

A higher level of credible participants on Australia’s iron ore scene is needed to drive the spot market and strengthen confidence in the industry, an analyst told MINING DAILY.

ANZ chief economist Mark Pervan said the iron ore spot market lies in the hands of Chinese steel makers as they move away from the benchmark system to take advantage of lower prices and fright costs.

“A stronger spot market will drive more security and confidence in the Australian market, as Australian iron ore is more attractive to investors,” he said.

According to Pervan, Australian iron ore is higher in grade and quality than its competitors and Australia’s stable economy and strong labour force makes it an attractive opportunity for investors.

Pervan points to Chinese investors to strengthen the spot market and said they hold the capital to invest in Australian resources.

“Chinese investors have the cash to push the change and drive the industry forward… They can create more participants which will bring an investment community to Australia and boost security and confidence in the iron ore sector,” he said.

He predicts investors will come to the table in the next six to 12 months before the market stabilises and commodities prices recover.

“The upturn is in full force and commodity markets are looking forward,” he said. “Investors will come sooner rather than later before labour, acquisition and upfront costs recover.”

In response to the BHP Billiton and Rio Tinto iron ore merger, Pervan does not expect it will affect spot prices for iron ore in the near future.

“While the BHP and Rio merger seems contrary to the need for more participants, the two companies will still work in competition with each other,” he said. “While the merger will synergise costs and maximise production for both companies, there will be minimal effect on sales and prices.”

According to Pervan, more Chinese investment will stimulate the industry by boosting confidence and providing much needed infrastructure to the sector.

“Local communities, other industries and the wider economy will also benefit from the flow-on effects,” he said.

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