Saturday, 12 Nov 2011
Iron ore prices have turned around after crashing 30% in October, but longer term the outlook is not rosy thanks in large part to the aggressive go to market strategy of the big three.
BHP, Vale and Rio Tinto control nearly 70% of the 1 billion tonne annual iron ore seaborne trade and thanks to their economies of scale have been flooding the market by concentrating on building market share rather than maximizing prices. This way the giants drive high cost producers out of the business and crowd out any new players who want to enter the space. And their dominance is only set to increase.
BHP and Rio’s production plans for the Pilbara region of Australia alone is a staggering 750 million tonne per annum while current number one Vale is planning to start work on its biggest project to date next year - the Serra Sul iron ore mine alone will add 90 million tonne per annum to the Brazilian company's current 310 million tonnes capacity.
Many analysts believe that while prices were likely to rebound to around USD 140 per tonne by year end from the USD 130 per tonne now, they do not expect prices to return to the previous highs above USD 180 seen just two months ago. During October 62% iron ore fell USD 60 to a low of USD 115 per tonne. At USD 140 per tonne prices are still more than double what they were during the 2008 financial crisis. Not everyone agrees that BHP Billiton, Vale and Rio Tinto will be able to keep their grip on the market.
Reuters quotes Mr Graeme Hossie CEO of London Mining as saying that “It is well understood in the industry that there is a need for new entrants, and certainly China wants new entrants - they want alternatives to the large guys.”
Australia's Fortescue Metals is an example of China nurturing new entrants. the China-backed company is already exporting 40 million tonnes and wants to increase this sixfold. It's not as if the giants agree on any kind of strategy: Reuters reported last week Rio Tinto last week blamed softening prices on more spot sales by the larger Vale of Brazil into the Chinese spot market to compensate for waning sales in Europe. Vale has dismissed the claim, saying prices were falling because of a production increase in Australia and changes in Chinese credit policy at the end of September on BHP Billiton's plans to increase its production in the Pilbara region the heart of Australia’s iron ore mining to 450 million tonnes a year by adding infrastructure and building new mines.
BHP’s current iron-ore production capacity is 155 million tonnes a year in the Pilbara, while rival Rio Tinto’s capacity is 225 million tonnes a year. Rio Tinto announced earlier in the month that it wants to grow output to 333 million tonnes by 2015.
(sourced provider.mining.com)
Iron ore prices have turned around after crashing 30% in October, but longer term the outlook is not rosy thanks in large part to the aggressive go to market strategy of the big three.
BHP, Vale and Rio Tinto control nearly 70% of the 1 billion tonne annual iron ore seaborne trade and thanks to their economies of scale have been flooding the market by concentrating on building market share rather than maximizing prices. This way the giants drive high cost producers out of the business and crowd out any new players who want to enter the space. And their dominance is only set to increase.
BHP and Rio’s production plans for the Pilbara region of Australia alone is a staggering 750 million tonne per annum while current number one Vale is planning to start work on its biggest project to date next year - the Serra Sul iron ore mine alone will add 90 million tonne per annum to the Brazilian company's current 310 million tonnes capacity.
Many analysts believe that while prices were likely to rebound to around USD 140 per tonne by year end from the USD 130 per tonne now, they do not expect prices to return to the previous highs above USD 180 seen just two months ago. During October 62% iron ore fell USD 60 to a low of USD 115 per tonne. At USD 140 per tonne prices are still more than double what they were during the 2008 financial crisis. Not everyone agrees that BHP Billiton, Vale and Rio Tinto will be able to keep their grip on the market.
Reuters quotes Mr Graeme Hossie CEO of London Mining as saying that “It is well understood in the industry that there is a need for new entrants, and certainly China wants new entrants - they want alternatives to the large guys.”
Australia's Fortescue Metals is an example of China nurturing new entrants. the China-backed company is already exporting 40 million tonnes and wants to increase this sixfold. It's not as if the giants agree on any kind of strategy: Reuters reported last week Rio Tinto last week blamed softening prices on more spot sales by the larger Vale of Brazil into the Chinese spot market to compensate for waning sales in Europe. Vale has dismissed the claim, saying prices were falling because of a production increase in Australia and changes in Chinese credit policy at the end of September on BHP Billiton's plans to increase its production in the Pilbara region the heart of Australia’s iron ore mining to 450 million tonnes a year by adding infrastructure and building new mines.
BHP’s current iron-ore production capacity is 155 million tonnes a year in the Pilbara, while rival Rio Tinto’s capacity is 225 million tonnes a year. Rio Tinto announced earlier in the month that it wants to grow output to 333 million tonnes by 2015.
(sourced provider.mining.com)
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