Declining Iron Ore Prices – And How It Impacts Australian Companies

Declining Iron Ore Prices – And How It Impacts Australian Companies

The recent global decline of iron ore prices has significantly impacted local Australian mining companies. In the last few months, iron ore prices have rapidly decreased from USD135/tonne to less than USD90/tonne. Pressure on iron ore operators has increased as prices have dropped.

One operation, the Cairn Hill iron ore project in South Australia, has recently ceased operations, succumbing to the market pressures on the industry. The operating company, Termite Resources (51% owned by ASX-listed IMX Resources) has been placed under administration. IMX has reassured stakeholders that it is in no way affected by Termite’s financial situation, stating that all contractual liabilities for Cairn Hill mine were the sole obligation of Termite.

The Northern Territory town of Pine Creek has also been severely affected by the declining iron ore prices. The town’s largest employer, the Frances Creek iron ore mine is set for closure by November 2014. The town relies heavily on the jobs created by this mine and the closure will dramatically affect the survival of this small town.

Another major concern resulting from this decline in iron ore pricing is that companies will now start to produce lower-grade ore in an attempt to render some sustainability over this difficult period. This will also have a significant impact on the import-export market.

Indian company JSW Steel Ltd., has now opted for importing bulk raw material for the first time as local supplies remain scarce and global prices are currently the lowest they have been in almost 2 years.

JSW, which depends on external iron ore sources to feed its 14.3 Mtpa capacity plant, has faced raw material shortages since 2011 when successive mining bans in the top producing states of Karnataka, Goa and Odisha decreased local supplies. While restrictions have been lifted in two states, output has yet to increase.

The company plans to purchase 6 million metric tonnes over the next few months. Suppliers in Canada and South Africa have already been contracted. It has also been said that JSW is negotiating with several Australian companies which could provide some positive news for local manufacturers.

Mining icon, BHP Billiton recently celebrated the shipment of its one billionth tonne of iron ore to Japan. BHP Billiton President of HSE, Marketing and Technology – Mike Henry – says that the import-export market is an integral part of the economy. “As Japan’s economy grew, the iron ore we exported came back to Australia as high-quality manufactured products like motor vehicles and the rolling stock and rail equipment we rely on in the resources industry. Today the high-quality iron ore we export from the Pilbara is an essential ingredient for Japan’s high-tech steel industry which leads the world in technology and efficiency.”

The opening of the Jimblebar mine in Western Australia in early 2014 has taken the iron ore capacity to in excess of 220 Mtpa.

And yet, these recent celebrations were not enjoyed by all. Production and exports may be flourishing, but BHP Billiton has also recently retrenched 500 employees from its iron ore operations in Western Australia as part of an ongoing cost-cutting programme.

The retrenchments have occurred in the Mount Whaleback iron ore operation and at the company’s iron ore headquarters in Perth. There has also been speculation of another possible 3000 retrenchments from their WA operations.

While there are some export opportunities being created by the global drop in iron ore prices, clearly the pressure on iron ore operators will continue until there is a significant recovery in those prices.

Sources:

http://www.theaustralian.com.au/business/mining-energy/iron-ore-price-slump-claims-first-victim/story-e6frg9df-1226959724124

http://www.businessweek.com/news/2014-06-19/jsw-steel-to-raise-iron-ore-imports-on-falling-prices