New projects need $90-$100 iron ore – UBS

The Big 3 are flooding seaborne market with ore they produce for as little as $20–$30 a tonne FOB to keep out competitors and protect their oligopoly, says a new report by UBS.

Also, that's a huge forecast price reduction.

The 40% drop this year must've surprised even the smart money.

"Our work in our updated incentive price analysis suggests that projects outside the majors need prices of $US90-$US100 per tonne to incentivise entry," Mr Morgan said. "But once built, these projects require about $US60-$US90 per tonne to break even."

However, UBS predicted that prices would stay too low for new projects to come on stream.

The paper, Iron ore: Game Changer, downgraded UBS's forecasts for iron ore to between $US80 and $US85 between 2015 and 2019. They had been about $US100.

The long-term price in 2014 dollars is just $US75.


At prices between $US80 and $US85, about "a quarter of current iron ore production is loss-making", the report said. "These producers will fight to cut costs and stay in the trade, but we believe a significant proportion will be unable to do so."

Via Rio, BHP have 'strong incentive' for iron ore deluge, says UBS.