It’s not news that the price of iron ore has crashed and coal prices remain pressured in 2014.
But this chart from Morgan Stanley’s excellent Metals Playbook shows just how starkly iron ore prices have fallen compared to other metals.
Morgan Stanley’s analysts have cut their long term price target to $70 a tonne, noting that it’s Australian production and the “relatively low-cost supply surge” which “continues to dramatically alter the character of the industry’s supply side”.
But they have some really bad news for smaller and more marginal producers in the sector:
Many of the mining operations that emerged over the past decade are unviable at current prices. The most exposed of these include low-grade iron ore operations in Hebei province, northeast China; and small operations in Australia and Brazil.
They highlight that the next 6-12 months should see the industry acknowledge that if the price falls persist, there will be more production cuts and mine closures.
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