Scandinavian iron ore miner Northland Resources SE has filed for bankruptcy with more than $650 million in debt. Kumba, whose Sishen mine in South Africa is the continent’s largest iron ore operation, will reduce stay-in-business capital expenditure 20 percent and a further 10 percent in 2015 and 2016.
Canada iron ore miner Alderon to cut jobs, defer payments to save cash. 90 per cent of iron ore mines in Shandong province have production costs higher than the current market price for iron ore, sparking fear of wides-spread closures. Australia‘s Atlas Iron and Mt Gibson Iron on Friday were forced to lay off workers and introduce austerity measures in an attempt to ride out a sharp slide in iron ore prices.
Iron ore has tumbled almost 50 percent this year and fell below $70 a metric ton on Nov. 25 for the first time since June 2009. The market needs to absorb a surplus of about 110 million metric tons next year, almost double the 60 million tons in 2014, Goldman Sachs estimates. Ore with 62 percent content delivered to Qingdao, China, rose 0.3 percent to $69.37 a dry metric ton yesterday, data compiled by Metal Bulletin Ltd. showed. Prices slumped to $68.49 on Nov. 26, the lowest level in more than five years.
But some buyers in China, which imports two-thirds of the world’s iron ore, were of the view that while prices would stay low for longer, they are unlikely to fall much further from current levels. “Some of the mills think that the room for prices to fall further from this point is probably small. We’re getting inquiries for cargoes and demand has not shrunk,” said an iron ore trader in Shanghai.
BHP Billiton and other big miners had embarked on a rapid production capacity expansion programme, banking on sustained demand growth in top buyer China. But though imports into China have surged, prices have fallen by nearly half to under $70 a tonne, with Chinese steel output growth slowing to around 3 percent.
Colin Barnett, the political leader of Western Australia state, where most of Australia’s iron ore is mined, has accused Rio and BHP of colluding to drive out competitors. Both companies have denied working together and Rio Chief Executive Sam Walsh said in a Reuters interview the business was now simply about “survival of the fittest.”
This drove Glencore chief executive Ivan Glasenberg to step up his attack on the big iron ore producers, including potential merger partner Rio Tinto, describing the industry’s decision to ramp up production as a “big bet” that could “kill” smaller miners. Mr Glasenberg criticised mining rivals such as Rio and BHP Billiton for continuing to invest in and ramp up iron ore production even though the commodity‘s price slumped this year. Speaking at the company’s investor day, he said the reason prices had fallen was that “we’ve all invested too much, we’ve increased supply and unfortunately a big amount has gone in the iron ore market.”
It seems though that the main iron ore producers might be rethinking their strategy as they are starting to feel some impact: Merrill Lynch downgraded iron ore producers including BHP Billiton, down 1.2 per cent to £15, and Anglo American, off 2.8 per cent to £12.84. Also, yerterday, BHP said it’s shifting the focus of investments in new projects to copper from iron ore to meet demand from China, its biggest customer. The company is, in fact, very close to getting final approval for its Resolution project, jointly owned with rival Rio Tinto (LON:RIO), which is set to become North America’s largest copper mine.
Citigroup last month said it expected iron ore to drop below $60 in 2015 due to renewed supply growth and further weakness in demand.
Revised forecasts from JPMorgan that suggest the commodity will average just USD 67 a tonne in 2015, about USD 20 below the investment bank’s previous expectation. JPMorgan also tips prices to average USD 65 a tonne in 2016 and USD 68 in 2017. JPMorgan said in its latest report “The only way the oversupply can be averted is if the low cost producers cut back on their growth targets. This is unlikely: feedback from recent site visits to the Pilbara suggests there is currently no consideration for slowing capacity growth from either Rio Tinto or BHP Billiton.”
Iron ore may drop to less than $60 a metric ton next year as the largest mining companies press on with raising supply, deepening a glut just as demand growth in China falters, according to Roubini Global Economics LLC. The commodity will average $65 a ton in 2015, with weaker prices in the first half before a recovery as some higher-cost capacity is closed, Director of Commodities Helen Henton said in an interview. While producers won’t fare well in an environment of falling prices, it does make sense for low-cost suppliers to keep expanding in the expectation that less-competitive mines will be shuttered, she said by phone from London.