Iron ore prices fall amid falling real estate in China, threatening profits of mining giants
Date
8/20/2024 8:34:26 AM
(MENAFN) Iron ore prices have plummeted to their lowest levels in two years, driven by a significant downturn in China's property market that has sharply reduced demand for steel. This decline poses a serious challenge to the profitability of major global mining companies. Since the beginning of the year, prices for this critical steelmaking ingredient have dropped by more than a third, erasing approximately USD100 billion from the combined market value of the "big four" iron ore miners—BHP, Rio Tinto, Vale, and Fortescue. According to Argus data, iron ore prices for delivery to Qingdao have fallen to USD92.2 per tonne, the lowest since November 2022, dipping below the USD100 threshold, at which point high-cost production becomes unprofitable. Vivek Dhar, director of mining and energy research at Commonwealth Bank, expressed concerns that iron ore prices might remain below USD100 per tonne in the near term, reflecting the market's growing unease.
Hu Wangming, chairman of Baowu Steel, the world’s largest steelmaker, has issued a stark warning about the sector's dire situation, describing it as entering a "winter" that would be "longer, colder, and more difficult" than the previous downturn experienced between 2008 and 2015. For major global miners like BHP and Rio Tinto, iron ore has been a crucial profit driver, enabling them to deliver high returns to investors and fueling growth in other commodities, including copper and fertilizers. The current slump in iron ore prices has been compounded by a significant drop in copper prices, which have fallen by about 20% from their record high in May to around USD9,100 per tonne, as weakened Chinese demand has dampened investor enthusiasm for the metal.
Despite the challenging market conditions, major mining companies in Australia and Brazil have managed to remain highly profitable, even with iron ore prices at USD100 per tonne. This resilience is largely due to their low production costs and their recent success in exporting record volumes. Until recently, many mining executives appeared relatively unconcerned about the declining demand from China. For instance, Jakob Stausholm, chief executive of Rio Tinto, mentioned last month that while the Chinese property sector's demand for steel had decreased by 100 million tonnes, it had been partially offset by a 40 million-tonne boost from energy transition activities between 2020 and 2023. Although this figure represents a small fraction of the 1.9 billion tonnes of global iron ore production in 2023, it underscores the importance of maintaining market discipline. Analysts believe that major mining groups will likely focus on this discipline to prevent iron ore prices from collapsing further. Recent data indicates that shipments from Australia and Brazil have already begun to slow, with July figures showing a significant decline, suggesting that miners may be taking steps to stabilize the market.
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