Cost cuts to protect big iron ore miners

More than 90% of producers in the global seaborne market can generate profits at a benchmark price of $60 a tonne, Adrian Doyle, a Sydney-based senior consultant at researcher CRU Group, said. That compares with about 65% of suppliers able to avoid losses at the same price point three years ago, he said.

“There have been fantastic cost reductions in a lot of instances.” Producers have also been boosted by lower oil prices, Doyle said.

“If we were thinking of a pressure point where we’d start to see a bit of stretching in the industry, previously it would’ve have been around $60 a tonne; now it’s closer to $50 a tonne to $45 a tonne to stress-test everyone but the majors.”

Benchmark iron ore dropped lower than $90 a tonne last week for the first time since February 10 amid rising supply in the 1.4-billion-tonne seaborne market and surging stockpiles in China.

Producers including BHP Billiton and Fortescue Metals Group have warned prices are poised to retreat.

Prices of the metal were likely to move closer to $60 a tonne by the end of this year, Sally Auld, chief economist and head of fixed-income and currency strategy for Australia at JPMorgan Chase, said.

They will drop to $56.89 a tonne in the final quarter of 2017, according to the median estimate among 14 analysts surveyed by Bloomberg.

About 14% of producers lose cash at $60 a tonne, according to Deutsche Bank analysts including Paul Young and Anna Mulholland. At $40, about 31% are loss-making, they wrote in a March 8 note.

With prices at $90 a tonne, only 1% of miners fail to generate profits.

Source – www.businesslive.co