There’s a death match among global iron ore producers, with the big Australian and Brazilian miners increasing the pressure on their high-cost Chinese rivals.
The play is being made in the hope of driving them out of the market, according to a new research report by Michael Komesaroff writing for the global research powerhouse Gavekal’s China-based arm Gavekal Dragonomics.
The Australian reports that Komesaroff says that Rio Tinto, BHP and Brazil’s Vale, “have kept supply growth at full tilt even as demand decelerates. As long as this state of affairs continues, the ore price will stay below the level dictated by cost-curve fundamentals: probably in the $US95-$US100 per tonne range”.
We know also from Fortescue Metals earnings report last week that it too has the pedal down, with a big increase in volume more than offsetting the fall in prices.
The problem for Chinese miners is that their ore is lower grade than the foreign imports while at the same time the costs of production they have to endure are at the upper end of global producers.
So given the large investment in mine production capacity which has now come online, this fight with foreigners is now a fight to the death for the Chinese because once the Chinese mines close, they are likely to be shuttered for good.
Komesaroff says that once the high-cost Chinese producers are driven out of the market, the price should rise back to around $110.
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