13/03/2015 – Iron Ore Price Plunge Puts Small Miners In Danger Zone

While iron ore prices continue to fall, the world’s largest producers are gaining market share at the expense of smaller players.

Iron ore prices have collapsed by nearly 50 percent over the past year, with the benchmark 62 percent FE iron ore for Qingdao delivery hitting a nearly six-year low of USD 58.15 per ton as producers relentlessly ramp production despite weakening demand from China, which consumes nearly half the global output.

At the same time, China’s dependency on imported iron ore is increasing – meaning that its domestic producers are ceding their market share. According to data released by China Iron and Steel Association, China imported 933mn tonnes of iron ore in 2014, up 13.8 percent year-on-year while China’s dependence on iron ore import rose by 9.7 percentage points to 78.5 percent.

The Big Four of the iron industry continue to increase production, much to the chagrin of the smaller producers. The production at Brazil’s Vale and Australia-based Rio Tinto, BHP Billiton and Fortescue Metal Group rose by a combined 112 metric tonnes in 2014, or 14 percent year-over-year.

The counter cyclical move by the Big Four – which already account for nearly half of the global output – is widely viewed as a strategy to drive smaller, higher-cost miners out of business. Even at the current low prices, the largest players can still squeeze out a profit, while the smaller competitors largely can’t.

Iron ore is largely used in steel production, and China’s domestic consumption of steel fell 3 percent year-over-year, the first time that it has recorded a drop in 30 years, according to consulting firm Wood and Mackenzie.

Source – Forbes.com