Development banks seek to revive world’s biggest power project
The planned Grand Inga hydropower complex in the DRC has been stalled for decades.
On Friday, the iron ore price bounced of fresh five-and-half year lows reached yesterday, but the pervasive sentiment remains ultra-bearish in a market coping with a massive supply glut.
The 62% Fe benchmark import price including freight and insurance at the port of Tianjin tracked by The SteelIndex added $0.70 or 1.1% to $61.80 a tonne on Friday.
So far in 2015 the price has fallen over 15% following a year in which the commodity nearly halved in value.
Most other analysts see prices consolidating around the $60 a tonne level this year with a pick-up by 2017 at the earliest.
According to Andy Xie, an independent economist who has been calling a steep decline in the price of the steelmaking ingredient for years, there’s much more pain ahead.
Bloomberg Business quotes Xie as saying the price will slump into the $30s this year as low-cost supplies from Brazil and Australia continues to rise and steel demand in China shrinks:
“When it peaked at $190, I started talking about a collapse and nobody believed me,” Shanghai-based Xie, a former Asia-Pacific chief economist at Morgan Stanley, said in a phone interview on Thursday. “We need to see prices much, much lower. It can still go down through $40 before we bounce back.
Xie believes iron ore will average $50 a tonne this year, but prices “need to decline to a level that’s so painful higher-cost Chinese mines will be forced to give up.”
The country’s domestic miners produce some 350 million – 400 million tonnes a year on a 62% Fe-basis.
Pressure on domestic Chinese iron ore miners which have successfully defended prices up to now is building particularly given estimates that around one-third of the many small mines struggling with low iron ore content (average close to 20%) have costs per tonne of more than $100.
But a collapse in Chinese production is unlikely because a large number of mines are owned by steel companies or are located very close to steel plants making mine closure at these vertically-integrated operations a last resort.
In addition “the desire to preserve employment and regional revenues in China’s provinces often helps to sustain loss-making industries for some time” and there is considerable scope for consolidation and rationalization which could help drive down costs.
SEE ALSO: China’s inland mills could be in market for 300mt seaborne iron ore
Small and mid-tier miners are not just battling the Big 4 producers (or if you count Gina Rinehart and the Roy Hill project, the Big 5) but market inefficiency in China.
