The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.
ROME- Iron ore mines are to Australia what the oil sands are to Canada. The Aussie iron ore business is enormous, capital intensive, profitable and has an insatiable customer – China – just as the oil sands can depend on the United States to consume almost all of its output. The Aussie and Canadian industries share another trait: falling prices.
The value of both iron ore and oil is plummeting. But the similarities end there. Oil is falling because of excess supply and waning demand in the Western world, in good part because zombie Europe is on the verge of a new recession. But global demand for iron ore is still climbing, if at a somewhat slower pace than last year. So why are iron ore prices falling, and why are they falling so much faster than oil?
The price for iron ore in China, the world’s biggest consumer of the material used to make steel for everything from office towers to dishwashers, is down about 30 per cent this year (compared to a 20-per-cent drop for oil). The spot price for iron is off about 40 per cent, though it bounced back a few bucks this week to reach $83 (U.S.) a tonne.
Iron ore is falling even though Chinese demand for steel is up about 5 per cent year on year, while demand for imported iron ore is up 15 per cent or so, outpacing import demand in 2013. On Tuesday, official data showed that Chinese iron-ore imports were up 17 per cent in the first nine months of the year over the same period a year earlier.
So obviously the problem is not a collapse in demand. The culprit instead is the surging iron ore output of the Big Three – BHP Billiton Ltd. and Rio Tinto Group, the Anglo-Australian mining giants, and Brazil’s Vale SA. They are responding to prices by ramping up iron ore production to unheard of levels. Since 2011 alone, Aussie iron ore output has climbed by 150-million tonnes a year.
Are they suicidal? On the contrary, they seem happy to flood the market in the hopes of making life difficult for the high-cost producers in China and elsewhere, though you would never get to them to admit to such unsporting behaviour.
For the rest of this column, click here: http://www.theglobeandmail.com/report-on-business/rob-commentary/rob-insight/why-are-iron-ore-prices-falling-so-quickly/article21085236/#dashboard/follows/