The iron ore market has experienced a significant downturn, with prices dropping to their lowest levels in two years. This decline is largely due to the struggling property sector in China, which has resulted in a steep decrease in steel demand. Consequently, major mining companies such as BHP, Rio Tinto, Vale, and Fortescue have collectively lost around $100 billion in market capitalization since the start of the year.
Currently, iron ore for delivery to Qingdao has fallen to $92.2 per tonne, marking its lowest point since November 2022 and dipping below the crucial $100 threshold. At this price, high-cost production becomes unprofitable, as indicated by Argus data. Vivek Dhar, director of mining and energy research at Commonwealth Bank, expressed concerns about the sustainability of iron ore prices below $100 per tonne in the near term.
The severity of the situation was highlighted by Hu Wangming, chair of Baowu Steel, the largest steel producer globally, who warned of a crisis in the sector, describing it as a “winter” that is “longer, colder, and more difficult” than downturns seen in 2008 and 2015. For mining giants like BHP and Rio Tinto, iron ore has been a crucial cash generator, enabling substantial returns to investors and growth in other commodities like copper and fertilizer. However, the drop in iron ore prices, along with a nearly 20% decline in copper prices from their record highs in May, has added to the challenges these companies face.
Despite the adverse market conditions, the low-cost operations of mining giants in Australia and Brazil remain profitable, even with iron ore prices at $100 per tonne. Both countries have recently exported record volumes of iron ore. Analysts anticipate that these large mining groups will likely exercise discipline to prevent further price collapses, with signs of slowing shipments from Australia and Brazil.
The ongoing downturn in China’s property market is a significant concern for investors, as it greatly impacts steel and iron ore consumption. Housing starts in China fell by a quarter in the first half of the year, following two years of double-digit contraction. This has led to an oversupply of construction metal, pressuring steel mills to reduce production to stabilize prices and remain viable.
While leading miners may face profit and payout pressures due to declining iron ore prices, the most significant impact will likely be felt by producers in China, Malaysia, and South Africa, as well as smaller companies, which may be forced out of the market if prices continue to decline. The outlook for the steel and iron ore market remains challenging, with demand from China’s property sector expected to remain weak for the next 12 months. Many steel mills will likely need to cut production until the industry achieves a better balance. Xinying Yao, director of steel at SMM, a Shanghai-based metals data provider, cautioned that there is potential for iron ore prices to fall to $90 per tonne.
Post Disclaimer
The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.
This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.
The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.