How Iron Ore Miners View Future Iron Ore Prices
Rio Tinto and BHP weigh in
Rio Tinto’s (RIO) chief executive officer, Jean-Sébastien Jacques, stated during the company’s 1H17 results that the Chinese economy has performed well in 2017. He added that the early signs for 2018 remain positive. Jacques noted that the order books for the Chinese steel industry remain full, which should be a positive indicator for the demand of high-grade iron ore.
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While commenting on iron ore prices during its fiscal 2017 results, BHP (BHP) noted that the year-to-date rise in iron ore prices is due to strong pig iron production in China, a preference for higher grade ore, and improved steel margins. The company added that the supplies from Brazil, Australia, and other non-traditional sources remain plentiful.
BHP expects costs across the industry to fall more as current projects ramp up and as de-bottlenecking and productivity lead to further production gains. A flattening of the cost curve is usually associated with lower prices.
What do Vale and Fortescue have to say?
Vale SA (VALE) is expecting iron ore prices to stay in the range of $60–$70 per ton for the rest of the year. Vale’s CFO, Luciano Siani Pires, noted that this price would not encourage swing capacity to come back online while it is still a profitable range for mining companies.
Fortescue Metals Group (FSUGY) is slightly cautious with respect to the iron ore price outlook. During its earnings report, Fortescue Metals Group’s CEO, Nev Power, noted that the company expects iron ore prices to slide back to $55–$65 per ton. He stated that mills could revert to lower-grade iron ore material to cut costs, which would result in lower iron ore prices going forward.
Iron ore miners’ concerns
Most of the iron ore companies (XME) agree that in the near term, prices should remain supported while pressure could return in the medium to long term due to the high supply of the material. Demand for higher-grade materials should increase as China continues its fight against pollution. This trend should increase the market share of miners producing higher-grade ore compared to those producing sub–62% grade iron ore.