Pain in iron ore as price bounce ends

Rio Tinto opened at $51.35 a share this morning, its lowest opening price since June 2013. Fortescue Metals Group opened yesterday at $1.71 a share, its lowest opening price since January 2009. And BHP Billiton opened on Monday at $26 a share, its sixth-lowest opening figure since March 2009.

The miners’ respective market struggles are the result of a fresh decline in the iron ore market.

Since dipping below US$50 a tonne earlier this year, the commodity looked to be slightly refreshed, sitting at around the US$60 mark for the past couple of months.

But over the last fortnight, the price has dropped back down again, reporting at US$49.70 a tonne overnight.

Since iron ore dipped under US$50 a tonne the first time this year, Fortescue has staged a massive cost cutting program, and has reportedly lowered its break-even from just above US$50 a tonne, to US$39 a tonne. Rio and BHP both operate at just over US$30 a tonne break-even.

But with market demand stagnating, and more volumes still set to come online from Australian newcomer Roy Hill, as well as Brazilian giant Vale, analysts aren’t tipping the price to head north any time soon.

Barclays mining analyst Amos Fletcher was in the AFR earlier this week advising investors to steer clear of iron ore miners not named BHP or Rio.

And UBS mining analyst Glyn Lawcock was quoted: “The concern the market has is that the all-in cash delivered price that FMG needs to be cash-neutral is ultimately going to be the dictator of where the long-term price settles.

“As more low-cost supply comes on, and high-cost supply is pushed out, ultimately the risk is that Fortescue becomes the most significant-sized marginal player. So even with their newly discovered cost base they could still find themselves not making cash.”

And Australia’s junior miners are continuing their criticism against the giants for causing all this mess, with suggestions that WA residents are being quietly polled as part of a campaign against the miners.

Several residents reportedly told Fairfax they had been randomly contacted by pollsters, and asked their views on whether BHP and Rio pay enough in taxes and royalties, whether they were putting too much supply into the market, or whether they have too much influence government.