What isn’t in the official figures is the iron ore grade, which is believed to be declining and may now average something close to 20 percent, well below the global standard of about 62 percent iron content.Īt current prices, about a third of Chinese production is loss-making, according to a Macquarie research report released this month.
Official Chinese data suggests that domestic output has yet to be shut down, but there are always question marks over the accuracy of the data.Īccording to the National Bureau of Statistics, June iron ore output was 139.3 million tonnes, up 7.3 percent from May, taking first-half production to 710.6 million tonnes, a gain of 9.9 percent from the same period a year ago. The big three miners are no doubt hoping that the lower iron ore price will knock out Chinese domestic output, as well as higher-cost, smaller-scale mines around the globe, and stymie efforts by Indian miners to re-enter the seaborne market.
Staying there depends on iron ore prices not falling too much, which in turn is largely dependent on developments in China, buyer of about two-thirds of seaborne iron ore. The miners are apparently in a sweet spot. So far it seems to be a winning strategy as they don’t appear to be battling to sell their output, and they are still likely to report strong profit growth as they reap the benefit of massive cost-cutting programmes over the previous two years. The three global iron ore giants have effectively gambled that they can continue to boost production and grab bigger slices of global demand, given that they can withstand lower prices due to their low-cost mines and economies of scale. The company is planning to boost its annual output to 450 million tonnes by 2018 from 306 million last year.
The world’s biggest iron ore miner, Brazil’s Vale, also had record output in the second quarter, posting a 12.6 percent gain to 79.45 million tonnes. It also is forecasting higher annual output, with the quarterly report released on July 16 pointing to 2014 production of 295 million tonnes, up 11 percent from 266 million in 2013.
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