For those looking to buy or sell shares in a listed iron ore miner, this table from Macquarie Bank may be of some interest.
It shows the current breakeven levels for various iron ore miners, along with the annual volumes each produce and the average quality of the ore they mine.
Macquarie says it used the average for spot freight and exchange rates over the December quarter last year in order to calculate individual firms breakeven level.
At $US28 and $US31 respectively, Rio Tinto and BHP Billiton had the lowest breakeven point of all miners monitored, well ahead of the likes of other market heavyweights such as Brazil’s Vale and Fortescue Metals Group at $US43 and $US48 respectively.
According to Metal Bulletin, the spot price for benchmark 62% iron ore fines stood at $US76.80 a tonne last Friday. In comparison, the price for lower grade 58% fines is currently significantly lower at $US42.32 a tonne.
“The vast majority of the iron ore industry is unsurprisingly in-the-money at current spot prices,” Macquarie says.
“Widening Fe-discounts have shifted low-grade producers up the curve, compared to early 2016, while some high-grade marginal producers –including Chile, Peru, Canada, Iran — have improved their competitiveness, despite their relatively higher operating cash costs.”
Macquarie expects the discount between lower and higher grade ores will weaken in 2018, although it says it is unlikely to return to historical lows in the short-term given structurally higher capacity utilization.
“Our analysis implies that if discounts remain large — or even widen further — there is a chance that the benchmark price outperforms all price forecasts again in 2018,” it says.