Slippery slope for iron ore

The global iron ore surplus continues to grease the way down for prices, which have slid to new lows with a US$80.02 per tonne recorded yesterday for 62 per cent fines, the lowest price since September 2012.

Rio Tinto and BHP Billiton show no signs of concern over the price, continuing to ramp up production and flood global seaborne markets with a glut of ore that threatens to push junior miners out of the game.

Some analysts believe Australia's iron ore stocks could be at risk of falling heavily, after rallying share prices since April despite the plummeting commodity price.

Rio Tinto chairman Jan du Plessis said earlier this year, "at the risk of sounding Machiavellian" volatility in iron ore markets had been good for the company, while iron ore start-ups and high cost producers struggled.

One analyst in Hong Kong told Bloomberg that there is still room for prices to go down, with costs of production to the larger miners around $40 to $50 per tonne.

Helen Lau of UOB Kay Hian in Honk Kong said “There will be a lot of cheap seaborne supply to replace Chinese market share. They will drive the price down lower.”

Iron ore prices have slumped more than 33 per cent this year, a trend that marks a return to pre- 2009 prices.

As recently as 2005 iron ore was selling for less than US$30 per tonne.

However the larger miners, including the world’s largest iron ore producer Vale SA, continue to forecast prices will bounce back towards the end of the year.

However, junior and mid-cap miners continue to suffer, with low prices threatening many operations, including Venture Mineral, owner of the troubled Mt Riley mine in Tasmania, which declared it would close down last week.

Grange Resources and Gindalbie Metals have production costs of US$98 and US$91 per tonne, pushing them into the firing line of uneconomic production.

Graphs: Indexmundi

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