Smaller Miners Struggle to Stay Afloat 5

Wednesday, April 1st, 2015
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Australia’s smaller iron ore miners are struggling to keep their heads above water as the price of the steel-making commodity hits a fresh post-global financial crisis low.

The price of Australia’s biggest export fell more than two per cent to $US52.90 overnight following a four per cent fall the previous day.

Junior and mid-tier miners are having to reassess their costs as the world’s biggest iron ore miners continue flooding the market despite a softening in Chinese demand.  Morgan Ball, the chief executive of junior Pilbara producer BC Iron, says his company is planning more cost reductions after recently meeting with Chinese steel mills.

“Clearly there is a significant supply influx still to come primarily out of Vale and Roy Hill in the short-term and that’s why we’re setting our business up for a couple of years, but we think we can operate through that,” Mr Ball told AAP.

“We have more costs to take out of the business that will help us through this period.”

Mr Ball said there were no plans to make further cuts to staff as he keeps a close eye on how many Chinese domestic mines reopen after winter.  Still, there could be some support for the iron ore price after China’s central bank eased restrictions on down-payments for second homes and cut taxes to boost its housing market.

“It all helps,” Mr Ball said.

“I think we’ll see more of those kind of initiatives.”

He added that mills and traders in China, India and Indonesia would prefer to deal with more than two or three companies.

Fortescue Metal’s chairman Andrew Forrest last week called for a cap on iron ore production, sparking an investigation by the competition watchdog the Australian Competition and Consumer Commission.

ACCC chairman Rod Sims will focus on cartel conduct in government procurement and in the commodities market, particularly iron ore in the year ahead.

“Mr Forrest has helpfully made that an important issue for us,” Mr Sims told a business briefing in Perth.

“As someone who has been watching the mining industry for 40 years, I’m staggered that people don’t realise that prices go up, people invest, production comes on, prices go down.”

But he said it was hard to prove an attempt to illegally cap production.


By Kim Christian
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  1. Ian Collier

    It seems that the bigger players are increaseing there output to do just that as anybody have comments on this view

  2. Mark Clarkson

    The more they deny it, the more it looks like a deliberate strategy by the majors to use their power of economic might and capital to eliminate the competition and consolidate supply in their hands. Expect a takeover bid for FMG soon.

  3. Duncan Brown

    Unlike BHP and Rio, FMG have all their eggs in one basket. As any actuary will tell you that is not a good way to mitigate risk!

  4. Steve Wells

    I offer my prediction which is based on nothing special. Rio, BHP and Vale are all using the most basic of economic principles to achieve a greater market share, and as mentioned just about anywhere, aren't really trying that hard to keep it all a big secret. Phase One which is currently in progress, is to drive up iron ore supply as quickly as possible while lowering their own production costs. This is done in order to lower prices on ore demand until those smaller miners with larger production costs than them eventually collapse. Phase Two is to buy up the collapsed remnants at bargain prices, which in order to preserve jobs etc, they will be allowed to do so by a grateful Government. Phase Three is where, once they have completed their aggressive over supply cycle and bought out all the vanquished competitors, they will then lower ore production to raise landed ore costs, and we will then have an iron ore market that resembles the OPEC structure for the sale of oil. Of course, jobs on the remaining mines will suffer, but this will be an unfortunate consequence of delivering the best shareholder value, which the surprised Government will of course support, even if the bulk of the revenue, just like the ore, is largely heading off-shore.
    The benefit to Australia? . . . you tell me.

  5. Mark Clarkson

    Add cut wages and conditions at the mines, where everyone will be grateful just to have a job and you have my vote for your scenario.