Iron ore production in China is poised to shrink further as cheaper imports and faltering demand threaten to close mines supplying mills in the top steelmaker. Most private mines in China have costs that are too high and produce ore of too low a quality to survive, according to Sanford C Bernstein & Co. Output that fell 20 per cent to 311 million metric tons last year would drop to 271 million tons this year and shrink further next year, Goldman Sachs said.
Iron ore retreated 39 per cent over the past 12 months as Australia’s Rio Tinto and BHP Billiton as well as Brazil’s Vale SA boosted low-cost production to cut costs and protect market share, spurring a glut as China slowed. The outlook for supply, and consequences for miners in China, will be in focus on Thursday as executives from the biggest producers address a conference in Singapore. BHP chief executive officer Andrew Mackenzie warned on Tuesday that lower prices were here to stay.
Georgi Slavov, head of basic resources research at Marex Spectron Group, said in an email: “Mines not part of larger cash or credit line-rich steel groups are facing annihilation. Utilization in China keeps dropping, which means more and more mines are struggling to meet the ends and produce.”
While prices rebounded 34 per cent since bottoming at a decade-low $US47.08 a dry ton on April 2, they are 67 per cent below a 2011 record. Ore with 62 per cent content at Qingdao was at $US62.88 a dry ton on Tuesday, according to Metal Bulletin Ltd.
China grew at the slowest pace in the first quarter since 2009 as policy makers shift the economy towards consumption, curbing iron ore demand. The country, which produces half the world’s steel, supplements domestic supplies of ore with output from overseas. About three-quarters of existing iron ore capacity in China is not profitable, and demand in the country is evaporating, says Slavov.
BHP’s Mackenzie said on Tuesday: “The growth in demand for iron ore is happening at a slower rate than the addition of low-cost supply. Which is why we’re bearish about iron-ore prices in the medium-to-long term.”
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