This iron ore price is getting out of control!

Iron ore has fallen 48% this year.

By Market DUMPING !!

They have successfully destroyed the mkt cap of small and mid cap iron ore companies (value destruction achieved $1b) and in the process have successfully destroyed >$10b of their own shareholders value.


There are plenty of mining companies on the ASX which wont see 2016, let alone 2020.

It's a bit of a shame what they're doing. It's like the schoolyard bully taking all the toys from the other kids because they've realised they can, then everyone else leaving the playground because there's nothing left for them.

At $US70 a tonne, Gindalbie, Atlas, Arrium, Mount Gibson, BC Iron and Fortescue are underwater

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GreenPat said..
It's a bit of a shame what they're doing. It's like the schoolyard bully taking all the toys from the other kids because they've realised they can, then everyone else leaving the playground because there's nothing left for them.

+ 1

I thought this was going to be about fairies...

First comes squashing the little guys while cutting costs (by maximising production) and hurting those pesky unions as a bonus. Then comes phase 2 strangling supply to drive prices back up but at reduced cost. Glencore have started phase 2 in coal now, idling *all* of their oz coal mines for 3 weeks in dec.

Underoath

With the greatest of respect and nothing too personal but like most other West Australians I think you may be a little young and a little spoilt by the iron ore boom of the past 10 years.

I think what you just saw was a once in a century economic boom that WA, Australia and the Australian people wasted and got fat and lazy on.

Like many others I have lived through the great iron ore boom and benefitted greatly from it. Like many others (including all sides of Australian governments) I spent everything on jetskis, fast cars, over priced Perth real estate, 50 inch HD TVs, stocks and shares that I have some idea might never reduce in value and an expensive consumer product driven life style.

$70 / tonne is still a good spot price for iron ore.

I was introduced to iron ore about 2001. In 2004 spot price was about $20 tonne.
It doubled by 2008 to about $40
It doubled again by 2010 to about $80
It double again to 2011 to a peak of about $160. At which point this was considered normal.
Now it has halved back to $80.
It is still four times above the price in 2004.

Interesting the miners you mention that won't survive at $70 / tonne are all companies that started in the boom, and most at the height of the boom. You don't rate a mention to the iron ore miners that were producing before the boom, and so probably understand how to survive at $70 / tonne. The likes of Grange, Arrium (or whatever their name is this week) and the small specialist SA and NT miners.

You could argue dumping is the problem and has halved the spot price, you could also argue that BHP, Vale and Rio were slow to react to demand which created a massive price boom that peaked in 2011, but now the big guys are simply back producing at the market % and cost they had pre-2010, or pre-2004, or pre-2001 and if they are dumping now, then they were dumping then.

What just happened was a short term boom. What is happening now is a return to long term normality.

Unfortunately what most West Australians think is that what we are seeing now is a short term downturn and we will soon return to 2011 levels, which are the norm.

Fortunately we still very lucky that the return to normality is so massively cushioned by the boom in gas and the crash in interest rates.

You reckon iron ore falling from 8 times long term prices to just 4 times is painful, wait until the gas boom, mortgage rates and real estate all return to long term normal as well.

Dude, we are all going to hurt then.

Personally I am banking on PM33's silver to boom at exactly that point so I can keep paying my over priced mortgage and driving both of my fuel guzzling 4wds whilst complaining about how badly off I am now.

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Carantoc said..
Underoath

With the greatest of respect and nothing too personal but like most other West Australians I think you may be a little young and a little spoilt by the iron ore boom of the past 10 years.

You reckon iron ore falling from 8 times long term prices to just 4 times is painful, wait until the gas boom, mortgage rates and real estate all return to long term normal as well.

Never worked in the mining industry, so didnt get too see too much gains from the boom apart from paying too much for my house.

Once the mines go under the effect will be largely felt by the service companies...

I agree that when real estate returns to long term normal, we will see a bloodbath.

Will Perth become a net exporter of people once again?


Good analysis Carantoc.

The spot price has gone down the toilet compared to recent years but how much Ore is sold at that price? How much is tied into contracts at a higher price?

someone said the base cost to produce iron ore from gina's pit is $45/tonne, less at some of the bhp and rio mines. I think they say keep digging and shippin it as their making money still at $70. Demand has reduced and production has increased. All the big miners in the world have expanded production so the price reduction was probably expected in hind sight. Some small companies with higher costs are going to struggle and this is going to cause pain. They can also go for their richer deposits to reduce costs. If not they are in pain. The financiers will make the decision to close or keep on mining at a loss for some of the small miners.

I do not know, and this is only rumours I hear, it is probably not true so don't use this for financial advice or publishing in the West Australian and you can probably work this out probably from the companies financial reports - but :

In 2010 it cost FMG $70 / tonne to get ore to the end of the ship loader, plus $15/ tonne in finance repayments so $85/ tonne equivalent spot price. Since then the Solomon Mine will have reduced their overall ore costs and they have repaid a lot of debt and re-financed the rest at a lower rate. So I figure they survive now at maybe around $70 / tonne

BHP and Rio have both cut costs and are reportedly around the $45/tonne (Rio slightly less, BHP slightly more) operating costs, plus they don't have the finance costs of the minors but they probably have some. So maybe they survive around the $60 / tonne mark average and much less for some individual mines.

Roy Hill will produce 55M tonne a year with a 330km rail line. At 55M tonne the rail line will be running at about 50% capacity, although they will obviously have fewer trains. Roy Hill are also building wash plants at the mine (apparently). The others generally dig dirt, crush it, ship it. There are a few BHP / Rio mines that wash ore, but for about the last 10 years they could sell more than they could mine and of any quality so they just turned the wash plants off to increase profit. I assume Roy Hill has a lot of clay in the ore (like FMG Christmas Creek who tried to use surface miners to address the issue) so they have to wash the clay out as it clogs the blast furnaces, which must add to the cost fairly significantly. Current situation is probably that you can't get away with poor quality ore. Spot price at $70 / tonne is for Pilbara blend at about 63% FE. Poorer quality ore presumably gets a lower price.

I have no idea but I can't see Roy Hill having an all in cost of much less than $80 - $85/tonne for several years. Eventually that will drop (less finance, less overburden to strip, turn all the dials up to 11, screw the truck drivers etc.) but they have to get there first.

The minors who are all trucking ore >100km to Headland must have costs significantly more than $85/tonne. But they can probably turn off and turn on for much less cost than the big guys. Some could probably go into care and maintenance for a while and survive on the cash in the bank from when the price was $120 / tonne.

I would bet that some individual Rio and BHP iron ore mines are not profitable at $70/tonne. BMA is currently closing smaller, older and poorer quality individual Qld coal mines on the same basis.

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Chris6791 said..
The spot price has gone down the toilet compared to recent years but how much Ore is sold at that price? How much is tied into contracts at a higher price?

Not much is in contracts from what I've heard.

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Carantoc said..
I do not know,

I have no idea

I don't know about that. It sounded like a pretty good analysis of the situation to me and was interesting reading. Thanks.

Off their latest annual or 1/4 reports, or media releases cash cost per tonne to the ship are listed as;
FMG $34 (peaked at $48 a couple of years ago)
BC Iron $37
Rio Tinto $20
BHP currently around $26 but are now shooting for sub-$20.
I couldn't find Karara/Gindalbie but it can't be too flash

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Poida said..
................... to produce iron ore from gina's pit .........................

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dirtyharry said..

Carantoc said..
I do not know,

I have no idea

I don't know about that. It sounded like a pretty good analysis of the situation to me and was interesting reading. Thanks.

I wouldn't buy or sell shares based on it, but yeah, I agree with dirtyharry..

What was Shay Gap producing? That was a BHP site that recently closed...

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sausage said..

Poida said..
................... to produce iron ore from gina's pit .........................

bet you'd get some interesting slag once you heated the ore in gina's pit

Ignor the cash costs... It doesn't reflect how things really are...

All in costs for RTIO are a little less than $45/tonne and BHPBIO are high $40s. That info above is correct.

The other comments about price based on Pilbara blend are also correct. The Fe number is 62% for the benchmark price.

On the subject of richer ore, or high grade, iron ore is a bulk commodity and the mining costs don't change that much by taking that approach. High-grading a deposit is essentally cutting your own throat as you end up with only lower grade (price penalty) that is accessible in the future and usually deferred waste movement (another nasty cost you don't want!)

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Rails said..

sausage said..

Poida said..
................... to produce iron ore from gina's pit .........................

bet you'd get some interesting slag once you heated the ore in gina's pit

That's beyond gross, but I dig your sense of humour

the mine site i am at are aiming at a $/t for rail (Not Port) target of <$12/t, and a production target of 65Mt/yr.
Yes we are increasing the amount of tonnes a year potentially flooding the market but this has been the mid/long term production outlook since 2007 possibly earlier.
But the Iron price is affecting the big players too. Our site alone has been asked to find over $230M in savings for the year through maximizing efficiency and reducing unnecessary spending.
Capital is still getting spent but operational costs have been restricted dramatically.
It's just that BHP and RIO have the infrastructure in place to make these changes whereas the smaller guys are still trying to consolidate.

On the buyers side China has started moving away from high grade ore and concentrating on consistency of ore.
This reduces their manufacturing cost by not having to adjust the smelting process
So even if you are a smaller player, if you can provide a good consistent grade of ore then you're going to have a market for it.

I think India will have a major say in ore prices in the next few years.

time to increase productivity, get rid of crazy overkill in safety and get the unions to take a chill pill.

...or simply cut the exorbitant salaries and wages of the employees.

Or for the government (State and Federal) to realize that the mining wage is not the normal wage for everday australians and that the wage they make, they sacrifice a lot of things that the average Metro worker takes for granted

^^^agree stuthepirate , who in the west wants Sailhacks address ??????

Lets not point the finger at the worker here. They are not the cause of the supply issue.

I recently worked in Mt Isa for 3 weeks, not a fan of fly in fly out.

21 days is along time away from your family.

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Underoath said...
Lets not point the finger at the worker here. They are not the cause of the supply issue.

I recently worked in Mt Isa for 3 weeks, not a fan of fly in fly out.

21 days is along time away from your family.

It's your choice, I can walk into a high paid job compared to my current , but I value my family more, the more you have the more you depend on income, , it'll get interesting if there's a major downturn watching people trying to pay their mining commitments on a normal wage, some cheap ss utes, jet skis, and boats on the horizon, not personally attacking you but that's how I see it

^^^I agree in part. I think the highly paid unskilled labour force of the mine (Truckies, Operators) will be effected much more than the Tradesmen or Professional work force.
As a tradie you can make quite a good income in town if your willing to put in the hours. But then it comes down to work/family choices again.
I'm lucky that my missus can stay home with our 2 young kids and give them the parenting and encouragement they need. On my time off I get to spend the whole week with them and do what ever we want together which is great.
If i was working in town , 10, 11, 12 hour days, working weekends to get that extra cash for that holiday to (insert destination), the time i'd spend would be less than it is now over a 3 week average plus the missus would go back to work and the kids become "turn key" kids.
Essentially there are pros and cons to both lifestyles. it comes down to personal choice and the ability of the family to work with it.

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Stuthepirate said..
^^^I agree in part. I think the highly paid unskilled labour force of the mine (Truckies, Operators) will be effected much more than the Tradesmen or Professional work force.
As a tradie you can make quite a good income in town if your willing to put in the hours. But then it comes down to work/family choices again.
I'm lucky that my missus can stay home with our 2 young kids and give them the parenting and encouragement they need. On my time off I get to spend the whole week with them and do what ever we want together which is great.
If i was working in town , 10, 11, 12 hour days, working weekends to get that extra cash for that holiday to (insert destination), the time i'd spend would be less than it is now over a 3 week average plus the missus would go back to work and the kids become "turn key" kids.
Essentially there are pros and cons to both lifestyles. it comes down to personal choice and the ability of the family to work with it.

Agree with Stu on this issue. Tell me who the bloody hell would want to work in an oppressive climate like it is in the North as a tradesman. Been there done that for just the average going rate. It is physically and mentally oppressive, with the hassle of a family without the old man not about for two- three weeks out of every four.
Got to have a good partner on the home front to manage this end, so the mortgage is payed off, and kids schooled for a better life for future.
Infrastructure cost are the big hitter here. Our crews out of Hedland cost $175 per hour that's "cost" not profit. Wages clearing are around the 30-40 per hour. The rest is infrastructure cost add on's
Oh, and some sites are doing just fine thanks, one I have close ties too are "'loaded on train" $7.60 a tonn." Others not so, but you get the drift here, the miners are seeing a changing landscape,but its only now weeding out the fringe mobs, like any other competitive business world wide. Its called "free enterprise"
Rio announce new mine out of Oskie road house area, gee must be tough and costly, with no future in this game These boys see the future world wide, they don't open new mines with share holders cash, with the belief its all doom and gloom.
Ride the wave lads, set yourself to ride the troughs as well as the swells, it runs like this, always has, and will do so in future.

Looks like world was in this territory already ( and low prices doesn't last long)

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Toph said..

dirtyharry said..

Carantoc said..
I do not know,

I have no idea

I don't know about that. It sounded like a pretty good analysis of the situation to me and was interesting reading. Thanks.

I wouldn't buy or sell shares based on it, but yeah, I agree with dirtyharry..

What was Shay Gap producing? That was a BHP site that recently closed...

shay gap closed xmas eve 1993 so not so recent

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Carantoc said..

I think what you just saw was a once in a century economic boom that WA, Australia and the Australian people wasted and got fat and lazy on.

Yep, totally agree.

My first job on a gold mine was FYOWI FYOWO (find your own way in, find you own way out) 3 months on one week off. Most people were stoked to have a job. There was a pilot strike on at the time an I had to do 48 hours Sydney to Kalgoorlie in a bus. A great adventure at the time. After a few years it had changed to 6 and 1 FIFO which was awesome by comparison.

It's not ideal for families, it's not ideal for people without a goal. It should be treated as a gift, get in, save some $$ and get out. I don't have a lot of sympathy for the crew that buy all their toys on borrowed money and then whinge about how tough life is when they get retrenched.