| Why the Outlook on Iron Ore Is Still Negative | |
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Why the Long-Term Outlook on Iron Ore Prices Is Still Negative (Continued from Prior Part) Iron ore miners
BHP Billiton (BHP) (BBL) and Rio Tinto (RIO) have reduced their per-unit costs significantly over 2014 and 1H15. This is helping them remain profitable, even under the depressed iron ore price environment. On the other hand, Vale SA (VALE) still has a long way to go with the S11D project. This project will lower the overall production cost for the company. However, Vale needs funding to complete it. For pure plays and smaller players like Fortescue Metals Group (FSUGY) and Cliffs Natural Resources (CLF), the margin cushion left is too low at the current levels, making them much more sensitive to iron ore prices.
The SPDR S&P Global Natural Resources ETF (GNR) tracks the natural resources index. BHP and RIO form 6.7% of its holdings.
Cost curve
Major iron ore producers are further reducing costs to weather the current market downturn. The mining costs are declining, though there have been some improvements from productivity gains, lower oil prices, and depreciating local currencies. High cost iron ore operators are exiting the market due to cost-cutting efforts by the majors coupled with expanding volumes. This in turn is pushing the cost curve for iron ore further down. This is also one of the reasons that the outlook for iron ore prices doesn’t seem very bright going forward.
Fundamental factors
In addition to this, as we previously discussed, supply side remains strong with no major slippage expected on plans from majors. China’s demand fundamentals remain weak. While the central bank and the government are taking steps to ensure steady economic growth, a positive impact has yet to be felt.
China remains the single most important market for commodities, and any negative outlook there could translate into weakness in commodities. While lower inventory level is one factor that could keep the iron ore prices steady in the short to medium term due to restocking, in light of the above factors, it is difficult to be positive about iron ore’s long-term fundamentals at this time.
For the latest updates, please visit Market Realist’s Iron Ore page.
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VanEck Vectors Global Alternative Energy ETF
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PRODUCER |
CODE : RIO |
ISIN : US7672041008 |
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ProfileMarket IndicatorsVALUE : Projects & res.Press releasesAnnual reportRISK : Asset profileContact Cpy |
Vale do Rio is a copper producing company based in . Vale do Rio produces copper, aluminum, bauxite, iron, manganese, nickel and silica in Brazil, develops coal and copper in Australia and in Brazil, and holds various exploration projects in Brazil and in Peru. Its main assets in production are ALUNORTE, URUCUM MINE, MILTONIA 3, MORRO DA MINA, TAQUARI - VASSOURAS, SOSSEGO MINE, CAPAO XAVIER, CARAJAS, ANDRADE, SAMARCO, CONCEIÇÃO, MINAS DO MIEO, AGUA LIMPIA / CURURU, GONGO SOCO, BRUCUTU, BAU, FABRICA NOVA, FAZENDAO, TIMBOPEDA, CORREGO DO FEIJAO, SEGREDO/JOAO PEREIRA, PICO/SAPECADO/GALINHEIRO, VARGEM GRANDE COMPLEX TAMANDUA, CAPITAO DO MATO, ABOBORAS, PARAOPEBA COMPLEX JANGADA, SERRA NORTE - N4W, SERRA NORTE - N4E, SERRA NORTE - N5-W, SERRA NORTE - N5E, SERRA NORTE - N5E-N, SERRA NORTE - N5S, SERRA LESTE, MILTONIA 5 and MRN (BAUXITE MINING) in Brazil, its main assets in development are BELVEDERE in Australia and SALOBO PROJECT in Brazil and its main exploration properties are SALOBO, MAR AZUL MINE, ONÇA PUMA, PROJECT 118 and VERMELHO in Brazil and CORDILLERA DE LAS MINAS in Peru. |