Courtesy of Citibank’s multi asset research team comes this excellent chart that looks at the bank’s estimated all-in breakeven rates for major seaborne iron ore producers in 2016.
Citi notes that the estimates are based on a 62% CFR (China) dry tonne equivalent basis, something that includes freight costs, with costs
adjusted for the revenue differentials that each miner is currently experiencing.
“This makes the comparisons between the companies more meaningful. Also it means that the all-in cash costs we show can be referenced back to the spot iron ore price that is most commonly quoted every day.”
As for the outlook for breakeven rates for the major miners, Citi believes that the current flat structure is unlikely to last.
“We believe that companies such as Kumba and FMG have cut maintenance capex below a level that is sustainable versus the big 3 producers,” say Citi.
“Also, the eventual normalisation of freight rates could add some slope to this curve. In this regard, the oil price is a key variable to watch. A rising oil price can drive freight rates up over time as well, pushing up diesel cost especially for mines with higher strip ratios.
“Another key factor is that Rio, BHP and Vale are all projecting volume growth, which could provide some potential for the majors to lower unit cash costs in the future especially relative to the smaller producers.”
On Monday the spot price for benchmark 62% fines rose to $51.11 a tonne CFR, according to Metal Bulletin.