Iron ore prices hit a two-year low

August 27, 2014

Slower demand from China has sent the price of iron ore to a two-year low. On Aug. 27 Benchmark Australian ore, with a 62 per cent iron content, dropped 70 cents to $88.20 a tonne, according to The Steel Index, bringing the losses since the middle of the month to 5.6 percent, The Financial Times reported.

The price of the steelmaking ingredient has sunk 35 percent this year on concerns about increasing global supplies and slower demand in China, which consumes around two-thirds of world seaborne iron ore.

The commodity is crucial to the profitability of several of the world’s largest mining companies, including BHP Billiton, Rio Tinto, Anglo American and Vale. They are spending billions of dollars increasing output to meet anticipated future demand, and capture market share, while pushing the global market into surplus.

If the iron ore price slips another $2 a tonne, it will be the lowest since October 2009.

Chinese steel production has expanded by nearly 3 percent this year, but demand growth during the first half of the year was only 0.4 percent, according to the China Iron and Steel Association. One reason for this slowdown is the weakness in the country’s property sector.

The big iron ore producers are betting that their increased production – and the resultant lower prices – will force supply curtailments elsewhere. When Rio Tinto announced its half-year results this month, it said that 125 Mt of iron ore supply would be cut this year, mostly in China. This would offset new supply to seaborne markets from Australia and Brazil, the company said.

Even so, few expect a rapid rebound in prices. Andrew Mackenzie, chief executive of BHP Billiton, said this month that he did not expect a quick return to an iron ore price above $100 a tonne.
 

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