AFTER flirting with a five-year trough for the past week, the iron ore price has finally reached the unwelcome milestone overnight.
Continued concerns over a supply-demand imbalance led to fresh falls, with the latest retreat representing the 11th red session in the past 12.
Benchmark iron ore for immediate delivery to the port of Tianjin in China is currently trading at $US85.70 a tonne, down more than 1 per cent from its $US86.70 closing mark in the previous session.
The commodity has lost more than 35 per cent this year, with its most recent slump seeing its price hit its lowest level since October, 2009.
It has lost 8 per cent of its value during the past fortnight alone as Rio Tinto, BHP Billiton and Vale lift supply at a time when fears grow of a softening Chinese economy.
The latest drop came after a widely quoted research note this week from respected CLSA analyst Ian Roper, who forecast a $US75 a tonne price in the back half of next year.
Investors were also struck by comments from the head of mining giant Anglo American, Mark Cutifani, who warned the retreat could have further to run.
“There is a lot of [iron ore] supply coming on and it will impact profits — and so I’m concerned,” he said this week.
While there are hopes that the price drop will reduce supply from marginal producers, particularly in China, Mr Cutifani cautioned this could take a while to impact the market.
“What I’ve found in this industry is that a lot of capacity can be really sticky,” he said.
“My concern is the downside [to prices will be] more and longer than you anticipate.”
The share prices of BHP Billiton and Rio Tinto were mixed on the news overnight, with BHP yielding 1.5 per cent in a rising market, while Rio added 0.5 per cent. However, BHP’s losses can largely be put down to going ex-dividend.
Rio and BHP both have market-leading cost structures that leave them turning a profit until prices sink below $US50 a tonne.
Such good fortune is not shared by the rest of the local industry as Atlas Iron has a break-even price in the low $US80 range, while Fortescue Metals Group and BC Iron have break-evens of around $US70 a tonne, according to a recent UBS analysis.
Source: The Australian
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