Miners Resist Falling Iron Ore Prices

The spike in iron ore prices earlier this year sparked market speculation about an extended period of demand for commodities. The recent turn in the fate of the steel ingredient has been even more rapid and may well continue. The big miners, however, have stood firm against the decline.

Iron ore fell almost 20% last week to $ 103 a tonne, and has more than doubled in price over the past two months. In Singapore futures trading on Monday, the price dropped to $ 90 per ton. This is a sharp turnaround: the spot price for shipping to China rose sharply between April 2020 and July this year, when it was around $ 230. This rise challenged tensions between China and Australia, which threatened to drag the mineral into a violent trade squabble targeting wine, barley and more. However, economic forces are more powerful than geopolitics.

The Brazilian supply is slowly recovering from the dam accident and pandemic. At the same time, demand is declining. Beijing, which accounts for about half of global steel production, has cut production to contain surging raw material prices and help decarbonize efforts. Officials may also want the capital to shine when it hosts the Winter Olympics in February. An infection from struggling real estate developer China Evergrande heralds a wider decline in construction. And as vaccines help reopen societies, global consumer spending is shifting towards services rather than steel-dependent machines and appliances. All of these trends herald a return to the iron ore price below $ 100, which prevailed between 2014 and 2019.

BHP, Rio Tinto and Fortescue will inevitably suffer from the retreat, but their mining costs are less than $ 20 per tonne. In addition, although they are heavily dependent on iron ore, the trio have either already diversified into other minerals such as copper and metallurgical coal, whose prices are rising, or are expanding and investing in other areas, including potash fertilizers and green hydrogen. Capital discipline in recent years has also meant strengthening their balance sheets.