Iron ore price output caps called ‘hare brained’
A halfhearted attempt at a rally after falling to fresh six-year lows on Monday petered out on Thursday with the price of 62% Fe at the Chinese port of Tianjin skidding $0.70 or 1.3% to $54.80 a tonne.
After losing 47% in value in 2014, the price of iron ore is down another 30% this year. The SteelIndex, a unit of Platts, first started tracking the spot price in November 2008. In 2008, the benchmark contract price was $60.80 a tonne, which was hiked from the annually-set price in 2007 of $36.63.
An indication of just how depressed the market for the steelmaking raw material has become came yesterday when global number four producer Fortescue Metals (ASX:FMG) chairman Andrew “Twiggy” Forrest challenged Rio Tinto (ASX:RIO), BHP Billiton (ASX:BHP), and Vale (NYSE:VALE) to band together to cap output.
On Thursday Rio’s chief executive Sam Walsh called Twiggy’s plan “hare brained” and told a mining conference to “artificially prop up” the price is “physically just not going to work,” reports the FT.
Walsh who used to head up the miners iron ore division is known for being a straight talker.
In December Walsh gave a wide-ranging interview to an Australian paper and in between talk about everything from milk jugs to Christian ethics in mining to opera and Glencore’s bid managed to slip in that “one day it [his first years as CEO) will be a Harvard case study because it really is an amazing turnaround.”
A bigger concern than making an agreement on production limits workable is probably the fact that anti-trust behaviour of this kind will certainly land the miners in trouble with regulators and open them up to lawsuits from customers.
While a slowing economy in China which imports more than 70% of the world’s iron ore can take some blame, the main reason for the slump is a flood of new supply.
Led by the Big 3, iron ore miners invested north of $100 billion in new projects and expansions since the start of the decade which pushed the market into surplus mid-2014.
This year Australia alone is set to dump an additional 48 million tonnes on the market pushing exports to 766 million – more than double the country’s output just three years ago.
Rio Tinto is well on its way to reach 360 million tonnes in the next few years. BHP Billiton’ is on target to grow capacity to 290 million tonnes per year by mid-2017.
Unlisted miner Hancock Prospecting’s Roy Hill could start shipping 55-million tonnes-a-year as early as September 2015, while Fortescue Metals have hit targeted production of 155 million tonnes per year right on time.
Marine Corps reservist Bob “Captain Kangaroo” Keeshan, 1942 with pet Kangaroo, via One.Big.Photo