Seaborne iron ore market is doomed says Cliffs CEO

Head of Cliffs Natural Resources Lourenco Goncalves has accused Rio Tinto and BHP Billiton of “terrorising” the iron ore market, and said he can’t wait to close his mine and get out of Australia.

The heated comments came after the company announced it would cut jobs and reduce the mine life of its Koolyanobbing operations in Western Australia due to low iron ore prices.

In a scathing review, Goncalves said the seaborne iron ore market is “doomed” and “cursed”.

 “I can't wait to get out of Australia," Goncalves said.

"As soon as I get to the end of life of mine in Australia, I'm out of there … I can't wait to get out of the seaborne trade and let the Australians take that horrible business on their own hands."

Goncalves criticised Rio, BHP and Vale, for talking up iron ore expansion plans claiming the majors were “playing the game of scaring everybody else’’.

However he questioned if the miners would go through with plans to ramp up because lower iron ore prices meant cashflow restrictions.

“If they still decide to keep iron ore prices artificially low, as they have been doing so far, their advertised massive capacity increases will not materialise due to insufficient cashflow generation,’’Goncalves said.

"My thesis is they are threatening a capital expansion that they are not planning to deploy … it is a lot more of lip service and empty threats and bad advertisements.

"The biggest problem for the iron ore price at this point is not even the fact that the world is being flooded with iron ore. It is the fact that the market and the press and investors are being flooded with bad information about the expansion plans of three companies."

Goncalves said BHP’s decision last week to defer spending on iron ore expansions at Port Hedland was a sign of things to come for the other majors.

"None of the three majors can continue to support their massive capex needs without allowing the iron ore price to increase," he said.

"A long story short, these big projects are not coming. When the rubber hits the road, you are going to see a lot more of these BHP decisions of postponing the de-bottlenecking project and this and that." 

This is not the first time Goncalves has had his say about the iron ore strategies of the majors.

In early March when the price of iron ore first tipped to a six-year low of $US57.70 a tonne, Goncalves said the strategy being employed by the miners was one of “self-destruction”.

"You pay the consequences of that.

"Let's assume that iron ore prices that are now at $US57 go to $US30, it's possible, you're going to have Australia going out of business as a country."

FMG’s founder and chairman Andrew Forrest also come out attacking Rio and BHP this week, claiming a falling iron ore price will affect Australian living standards.

Speaking to broadcaster Alan Jones, Forrest said the iron price would continue to tank unless major miners stopped oversupplying the market.

“If we don’t get responsibility coming into the future actions and the current statements of the very multinational companies that derive their fortunes from our own land then the iron ore price will continue to fall, the budget will be thrown into jeopardy, the deficit will grow and our standard of living will fall,’’ Forrest told Jones.

“And it’s all completely avoidable. None of this had to happen.’’

The price of iron ore extended its fall overnight and is now trading at $US56.20 a tonne.

After hitting a record low of $US46.70 a tonne on April 2, iron ore made a rally from April 16 which saw it add 26.7 per cent to its price.

But as most analysts predicted, the surge has been short-lived as market fundamentals remain off balance.

These fundamentals include a slowing growth rate in China leading to weakened steel production and an oversupply of iron ore.

Image: The Australian

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.