Iron ore prices hit by fresh evidence of looming surplus
Iron ore prices experienced their sharpest drop in two weeks after BHP Billiton (ASX:BHP) reported Wednesday its quarterly output beat expectations and emphasized again plans to further hike production, adding to a global surplus.
Seaborne with 62% content delivered to Qingdao dropped 0.7% to $51.76 a ton on Wednesday, according to Metal Bulletin Index. Prices for the steel making material, which hit their lowest in six years earlier this month at $44.59, have dropped 27% this year, after almost halving in 2014.
Analysts believe waning demand for steel in China and surging supply is set to push the iron ore price even lower, eroding gains in the second quarter of the year, when the commodity climbed from a decade-low.
A few months of prices above $60 had given small producers valuable breathing room to keep reducing costs and pushing their break even prices as low as they could.
Miners are now back in the danger zone. UBS estimates of break even prices – the point at which miners neither make or lose money – show there is little room to move. The investment bank puts the breakeven of BC Iron at $52 a tonne, Mount Gibson at around $49, and Fortescue Metals Group at $44 a tonne.
Meanwhile Gina Rinehart's Roy Hill, expected to ship its first ore this September, has an assumed break-even price of $41 a tonne.