Iron ore price horror: near five year lows

Ordos, Inner Mongolia. China's notorious ghost city. Source: news.com.au

Ordos, Inner Mongolia. China’s notorious ghost city. Source: news.com.au

Michael Sainsbury

The iron ore price fell below US$89 per tonne today, its lowest mark in almost five years, and it is set to fall even further with China’s housing market – which has underpinned the commodity for the past few years – showing no signs of recovery , despite some stimulus efforts by the ruling Communist Party.

Falling 3 percent in the past week closing this evening at US$88.90 for the benchmark 62% Fe landed at China’s northern port of Tianjin, iron ore is now down more than 33 per cent since the beginning of the year, according to Platt’s The Steel Index and at its lowest pint since October 2009.  In June this year it hit US$89 per ton, matching the previous 4 year low of September 2012 which famously sent Fortescue Metals Group scurrying around the global seeking  would eventually be an extra $5 billion in debt funding.

FMG has used the two years since then to pay off debt and dramatically cut its cost per ton. The company now says that its break-even price if below US$70 per ton.

But other smaller iron ore mining companies will not be so lucky, with prices at these levels some junior miners may be looking at fore sales, news reports have suggested. Vulnerable companies are led by Gindalbie  Metals which has a break-even price of US$90 per tonne but others including Atlas Iron, and Mount Gibson –  will also now be coming under pressure

The sliding iron ore  price comes as seaborne volumes of the commodity have continued to surge as major new mine, and mine extension, projects by the world’s largest iron ore miners Rio Tinto, Vale SA and BHP Billiton have come on line,  supplies are forecast to continue rising over the the next few years as Vale, in particular, looks for a major expansion and a number of African projects get under way.

Supply is soaring  just as demand in China continues to fade amid growing fears that the problems in the country’s housing market could lurch form problem into crisis. China is expected to see a rise of less than 3% in steel making next year compared with last year and some analysts believe steel production in 2015 could be flat, helping to push iron ore price to US$80 or lower.

House prices in 55 of china’s 70 largest cities fell in June from a month earlier, the FT reported.

“China’s real estate market seems to have reached a turning point,” said Zhu Haibin, a JP Morgan economist, in a recent report. “A housing market slowdown is the major near-term macro risk in China.”

Look out below.