Iron ore is getting slammed.
Over two months the commodity has fallen almost 25%. Overnight, iron ore was $48.06 per tonne – a far cry from the more than $100 it was fetching early last year.
In what looks like the first casualty of the crashing commodity price, Atlas Iron on Tuesday opted to enter voluntary suspension on the ASX as it undergoes an internal review.
The bottom line of the table below from UBS shows the 62% fines equivalent price per tonne required for each miner to breakeven if they were all selling the same grade product.
Atlas, for example was producing iron with a ferrous content of between approximately 55% and 58%, compared to the quoted price of 62%. That means its product was probably being sold for up to $US15 less than the spot price.
The table below shows iron ore’s fall below $50 a tonne is significant as it ups the pressure on miners’ margins. According to the table, at the current $48 tonne price, Fortescue, Mount Gibson, BC Iron and Grange Resources aren’t making a profit in the current market.
Using the table, only BHP, Rio Tinto, Arrium and Gina Rinehart’s Roy Hill would be covering their breakeven costs.
In his morning note today, IG Markets analyst Evan Lucas said he was worried about the future of a number of mid-tier, pure-play iron ore miners.
“I have concerns for BC Iron, Mount Gibson and the junior play Gindalbie Metals as well,” he said.
“Some would also suggest Fortescue is in the same boat – its balance sheet is a major concern and there is a very strong case that FMG is now trading underwater. However, it has passed construction phase while the others have not, giving it some breathing room.”