As per report, the price of benchmark Australian iron ore with 62% iron content has fallen 12.5% in the past month. On Monday it dropped to USD 123 per tonne the lowest since December.
The price of iron ore is crucial to the global economy since it feeds through into the cost of steel and, ultimately to the cost of everything from houses to washing machines. It is also critical to the profitability of miners BHP Billiton, Rio Tinto and Vale as well as steelmakers such as ThyssenKrupp, ArcelorMittal and POSCO.
The fall in prices will weigh on the profitability of the mining industry, since iron ore has been one of the mined commodities to have outperformed expectations in recent months.
The steelmaking ingredient rose to a 16 month high of USD 158.90 per tonne in February having surged more than 80% in a few months. Even at this week’s price of USD 123, margins for mining iron ore remain extremely high for the largest producers in Australia and Brazil, whose costs of production are closer to USD 50.
Analysts said that the past week’s tumble in prices had been caused by an outbreak of bearish sentiment in the Chinese steel industry which accounts for 60% of global seaborne iron ore imports. In particular, large Chinese steel mills had been selling their inventories on the market.
Mr Graeme Train analyst at Macquarie in Shanghai said that “Chinese mills appear to be undertaking yet another iron ore destock, resulting in the usual price weakness. In our view, prices will continue to fall over the coming weeks until destocking is complete.”
Ms Melinda Moore analyst at Standard Bank in London said that prices had fallen below the cost of production for the highest cost producers in China and India, suggesting the market could soon find a floor. Current supply demand balances remain tight, and last week’s price weakness was driven by destocking pressures, rather than underlying fundamentals.