A senior BHP Billiton executive says there is no light at the end of the tunnel for depressed iron ore prices, which will gradually deteriorate over the next few years before finding a new normal well below $US50 a tonne.
Alan Chirgwin, BHP’s vice president of marketing for iron ore, says the price will gradually fall over the next few years before finding a new normal at the highest breakeven of “a major producer in Australia or Brazil”.
That would likely be either Fortescue Metals Group or Brazil’s Vale, which are both racing to avoid the unwanted marginal producer status. Fortescue is sitting at about $US37 to $US38 on breakeven, while Vale is closer to to $US40 a tonne, and they are well behind the other two majors, Rio Tinto and BHP.
Iron ore prices hit a four-month low of $US49.50 on Monday night, tumbling from $US56.61 on October 12. The iron ore price has fallen 16 per cent in the past eight weeks.
Mr Chirgwin said that after Gina Rinehart’s Roy Hill ramps up next year, and Vale’s mega project S11D does the same into 2017, “any additional supply growth will come from productivity or debottlenecking, as you’re seeing with those who have (already) made their final investments”.
“That is going to be the story longer term,” Mr Chirgwin told Fairfax Media in Singapore.
“What that means is that price will very much depend on the cost structures of the miners and their ability to preserve them and bring them down.
“Ultimately the price in the longer term is going to be set by the marginal cost producer either in Australia or Brazil and it is going to be one (the miner) that inherently lacks scale, quality and infrastructure simplicity.”
Price prospects for the other key ingredient in steelmaking, metallurgical coal, are also poor.
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