Mike King – April 15, 2016:
Chinese iron ore imports are….. soaring, thanks to the lower-cost, higher quality Australian and Brazilian product. Many of China’s steel mills are also located along the coast, making imported ore much more accessible than domestic mines located hundreds of kilometres away.
Those same steelmakers are also looking to substantially lower their costs in the face of subdued steel prices, and one way to do that is to replace lower-quality ore with the higher quality ore from Australia and Brazil.
The major miners, Vale, Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP) are profitable at current prices, and the world’s fourth-largest producer Fortescue Metals Group Limited (ASX: FMG) has joined the party with C1 cash costs of below US$15 a tonne in the last quarter.
Gina Rinehart’s Hancock Prospecting is probably not too far away once it ramps up to full production at Roy Hill too.
…..There are still storm clouds on the horizon though, with Rio’s CEO Sam Walsh telling reporters in London that prices may fall in the second half of the year, with global output set to increase and offset improving demand from China. Research firm, Liberum Capital, has echoed others’ forecasts with its estimate that prices will fall below US$40 a tonne in the second half, saying demand had been “front-end loaded and will taper off.”
Methinks demand will taper over time while the surge in supply seems inevitable when Roy Hill gets going.