The Federal Government has slashed its iron ore price forecasts, and miner Atlas has flagged writedowns of up to $900 million this year.
In its latest December quarter update, the Federal Government's official commodity forecaster, the Bureau of Resources and Energy Economics (BREE), has forecast an average iron ore price of $US63 per tonne for 2015.
That is 28 per cent lower than the average price for this year of $US90 a tonne, and reflects current spot prices stuck well below $US70 a tonne.
Iron ore spot prices have roughly halved over the course of this year, and BREE sees no imminent recovery from those declines.
"The current market oversupply is expected to prevail through the start of 2015 in response to a likely ongoing cyclical downturn in China's housing sector," forecast the report.
"Prices are forecast to rebound in the second half of 2015 as some producers cease production and housing construction activity in China starts to recover; however this rebound in the housing sector remains a key area of uncertainty."
The weakness in iron ore prices occured despite rising demand from China, where imports were up 14 per cent this year to 938 million tonnes.
BREE is forecasting a further 3.7 per cent rise next year, however prices will continue to be depressed by a further 7 per cent increase in Australian and Brazilian exports, following a 24 and 10 per cent increase respectively this year.
Atlas to write down up to $900m; struggling to break even
Smaller Pilbara miner Atlas Iron has warned of a $700-900 million non-cash writedown in its half-year accounts due to the weak iron ore prices.
Atlas has had to write down the value of its mines and tenements due to the lower value of the commodity.
It also said that it needs a spot price of around $US68 per tonne to break even based on its November costs, which have been heavily reduced by a cost-cutting program.
"Atlas has worked throughout the calendar year to quickly reposition its cost base, in light of the changing iron ore market conditions," said its managing director Ken Brinsden in a statement.
"The speed with which costs have been taken out of the business is a credit to the Atlas team and our contractors and suppliers."
A key Chinese spot price yesterday dropped to $US65.60 a tonne, meaning that Atlas would be producing ore at a loss, as it will next year if the BREE forecasts are accurate.
However, Atlas said it still remains "well within" the terms of its debt financing arrangements.
The company today announced that it is buying out its joint venture partner to take full ownership of the Mount Webber mine.
Atlas is paying Altura the equivalent of the principal and interest payments that junior partner owes Atlas.
That is estimated to be around $22 million, while Atlas will also pay Altura a sales royalty of 1 per cent on its share (around 16 per cent) of iron ore sold from the mine, but only when the sales price averages more than $95 in the month of delivery.
The current Chinese US dollar spot price is equivalent to just over $80 a tonne.
Atlas shares were up 3.6 per cent to 14.5 cents shortly before midday (AEDT), but are down 87 per cent so far this year.
Source: ABC
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