The West Australian iron ore sector is bracing for more job cuts and potential mine closures, and Chinese investors are weighing up buying opportunities.
Junior iron ore miners Atlas Iron and Mount Gibson slashed hundreds of jobs last week, with Mount Gibson closing a troubled mine as the price of the steel making ingredient trades around a five year low.
And more pain is predicted across the sector as high and low cost producers remain under pressure, with no sign of a rebound in prices.
Fat Prophets resources analyst David Lennox said the price had stayed down for long enough to make job losses inevitable.
“They’ll all be doing it,” Mr Lennox said.
“I can’t think of one producer that won’t be exempt from trying to lower their operating costs in this sort of environment.
“There will certainly be other mine closures, it’s just the way the cycle works.”
He said it would be a difficult reporting season for all iron ore producers, come February.
Last week Pilbara iron ore miner Atlas Iron cut 11 per cent of its workforce and Mount Gibson made most of its 360 Koolan Island workforce redundant and closed a mine after flooding.
The iron ore price has halved since the beginning of the year to just above $US70 per tonne as the biggest iron ore producers increase production despite an oversupply.
Rio Tinto boss Sam Walsh last week said reducing volumes would only help strengthen the company’s 32 struggling high cost producers and affect the mining giant’s cash position.
Mr Lennox added that Rio was looking to take more costs out of the business as its profits were impinged by lower pricing.
But he said China would not want to again be beholden to the world’s three major producers, Rio, BHP and Vale, if high cost production was removed.
“The Chinese could look at amalgamating smaller operations and they’ll be looking at the opportunity to grab long-life sources,” he said.