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Most mining firms rely on their own diesel supplies to extract iron ore, diamonds, rutile and bauxite in the resource-rich country.
The world’s number one producer of the commodity, Vale, sees iron ore prices trading in a range of between $100 – $120 per tonne for an extended period.
Speaking at an industry event in China on Thursday, José Carlos Martins, head of ferrous metals and strategy at the Brazilian miner, also warned that market volatility will continue according to Reuters Brazil.
Iron ore was unchanged at $104.20 a tonne on Wednesday having clawed back more than 20% of its value since hitting a three-and-a-half year low of $86.70 on September 5. This time last year the commodity was trading above $170 a tonne.
A Chinese industry body said roughly 40% of domestic producers have suspended production – when the price of ore falls below $100 many Chinese miners of the steelmaking ingredient become unprofitable.
Chinese miners simply cannot compete on price with the top exporting countries – Brazil, Australia and South Africa. The iron content of Chinese ore currently stands at only 20%, down significantly from 30% in 2004 and well below the benchmark 58% and 62% ore from the likes of Rio Tinto, Vale and BHP Billiton.
Investment bank Standard Chartered predicted in an August study that Chinese iron content could sink to only 15% by 2026, further benefiting the big three producers who control over 60% of the 1 billion tonne global seaborne iron ore trade.
Vale said the company estimates Chinese steel production will rise 3% to 5% in 2013 which would also boost imports.
While it continues to produce steel at a pace of near 2 million tonnes a day China’s steel industry has been struggling with profitability.
Lange Steel reported on Thursday top producer Baosteel has suspended production at its plant in Luojing, Baoshan district, Shanghai to stem further losses. The company acquired the project for more than $2.2 billion in 2008.
