With the iron ore price falling to nearly $US40 per tonne, analysts can’t see an end to the pain any time soon.
With the iron ore price falling to nearly $US40 per tonne, analysts can’t see an end to the pain any time soon.
One dollar invested across the state’s eight listed iron ore producers five years ago would be worth half as much today, after the precipitous slide in the commodity’s price reached 10-year lows last week.
A basket weighted by (2010) market capitalisation of the five producers would be worth 49.7 cents as of the time of writing, while an unweighted basket would be worth even less, about 25.9 cents.
That shows the bigger producers have weathered the storm much better than their smaller competitors, either through diversity of income sources or increased volumes.
Atlas Iron has had the toughest time of it, with its share price down 99.3 per cent since December 2010, while Gindalbie Metals was down 97.4 per cent (see table).
Another metric, total shareholder return gives an average unweighted loss of 26.5 per cent.
That includes dividend payments and makes adjustments for capital consolidations.
Atlas again fared poorly, with a TSR of -58 per cent over the past five years.
The company unleashed a substantial share placement earlier this year, which diluted holdings, in order to raise funds.
However, Stock Analysis principal Peter Strachan said the pain in iron ore would continue for some time.
Part of the issue was that higher-cost miners, usually in China, were not responding to price signals, despite there being no rational reason to remain in production.
That added about 250 million tonnes per annum to the market, he said, and those workers would not be redeployed until other opportunities were found for them, which could take two years.
Mr Strachan noted that Fortescue Metals Group had brought about 165mtpa into the market in the past four years, while Roy Hill Holdings would soon deliver up to 50mtpa.
Further afield, Brazilian giant Vale was looking at a 90mtpa upgrade.
Additionally, there was no-one to mop up the excess production.
“It’s really a lack of demand growth as China’s steel industry stabilises,” Mr Strachan said.
Mr Strachan forecast a long period of low prices, with a war of attrition forming among high-cost producers.
“Roy Hill was trumpeted as being a low-cost producer and being able to make money at $45, $48 a tonne … that was at its final run rate,” he said.
In the interim, costs will be more like $50/t, and it would take time to get towards the low $40s.
“It might start up and just close down in six months,” Mr Strachan said.
In a recent analysis, HSBC chief economist (Australia & New Zealand) Paul Bloxham said metals prices were down across the board in November.
“Iron ore was the worst performer, with prices falling by 12 per cent compared to October,” he said.
“The iron ore price has now fallen by around 75 per cent from its peak levels in early 2011.
“Recent data showed that China’s iron ore import volumes in October were around 5 per cent lower year on year; further evidence that Chinese demand has been weakening.
“The theme of slower growth in China’s industrial sector weighed on other metals too, with nickel down 10 per cent month on month, copper down by 9 per cent, zinc falling 8 per cent.”
The bank’s proxy for the IMF commodity index fell 6 per cent for the month.
“Relative to early 2005, most commodities actually have significantly higher prices today, but oil prices are around 9 per cent lower and natural gas prices are 65 per cent lower and, together, these account for almost two-thirds of the index,” Mr Bloxham said.
Mr Strachan said there would be rationalisations in the supply of other commodities.
“The Chinese have decided to close down 500,000 tonnes per annum of zinc … (nickel) inventories on the London Metal Exchange will begin to fall. For these commodities, markets might begin to turn around March or April,” he said.
