Small scale miners struggle as iron ore prices plunge

Author: Paul Ploumis
30 Mar 2015 Last updated at 05:39:47 GMT

SPOKANE (Scrap Monster): The small scale miners in countries like Canada, China and Africa are reeling under pressure, as the world’s three leading miners have increased their production levels, despite slowdown in demand. The plunging commodity prices have left operating costs at higher levels, thus leading to closure of some mines in these regions.

The sustainability of iron ore mining projects have been under threat following sharp plunge in iron ore prices during recent times. The prices have remained extremely volatile during the past six years, ranging from $60 per metric ton on the lower side to $187 per metric ton on the upper side. However, iron ore prices have witnessed unprecedented decline during the past two years. The prices have fallen by nearly 55% from $122 per metric ton levels during Jan ’13 to as low as $67.39 per metric ton during Jan ’15. Consequently, some high-cost mines in Canada, China and Africa have been forced to shut down.

Surprisingly, the world’s three largest iron ore miners-BHP Billiton, Rio Tinto and Vale have increased their iron ore supply, thereby adding to supply glut. The above three companies along with Fortescue Metals Group control over 70% of the seaborne iron ore market. At the same time, there has been a substantial drop in Chinese demand for the raw material.

According to estimates, the operating costs of world’s top miners are lowest among the industry participants. The cash operating cost of Vale is estimated at $23.6 per metric ton, whereas that of Rio Tinto is $20.8. The operating costs of BHP Billiton and Fortescue are estimated at $25.89 and $51 per metric ton respectively. However, there are iron ore miners that operate at cash costs that far exceed $60, which makes their operations unprofitable considering the current average iron ore price. The key is that only low-cost miners are likely to survive in the days to come.