Iron wills may not be enough for Glasenberg and Davis to make it big in the ore business

Reuters has a thorough look at the chances of a combined Glencore and Xstrata emulating the sector's leaders and bulking up profits from iron ore.

Glencore in January spun off its iron ore division into a separate entity to better tackle the lucrative market, but iron is still a very small part of the Swiss giant's overall business.

The big three – BHP, Vale and Rio Tinto – control nearly 70% of the 1 billion tonne annual iron ore seaborne trade and even the combined mining and trading capabilities of a Glenstrata may not be enough of an advantage over the incumbents.

Reuters reports "industry sources say both Glencore and Xstrata have already considered a string of projects and companies — buoyed by iron ore prices still robust at three or four times the cost of mining — but no major deal has yet made the grade:"

Few, though, expect Glencore to just wait for Xstrata's early stage iron ore projects to produce.

The prize for Glencore, indeed, is not production but the trading potential. And it will be impossible for Glencore to become an iron ore heavyweight without boosting volumes.

Any acquisition would also be an expensive undertaking. Reuters quotes one executive as saying "the situation is totally different to their entry into coal years ago — you have to pay top dollar for iron ore mines now, whereas years ago, coal mines were cheap."

With China's announcement on Monday that it is lowering its growth target to below 8% for the first time since 2004, the outlook for iron prices is also not that rosy.

According to Steel Index China's import price for 62% iron content ore was pegged at $143.20 on Monday – the price has hovered around this level for most of the year.

After hitting a high above $180 in September 2011 iron ore tumbled to $116 in the space of a month.

In December Rio Tinto's chief executive Tom Albanese said “assumptions that the floor price would not go much below $120 a tonne might be valid next year but not long beyond that.”

Click here for MINING.com's dedicated iron ore pricing page.