More Domestic Mines to Close Due to Drop in Iron Ore Prices
There is a possibility for the country to shutdown around 80 million tons of its domestic mine production which is a fifth of its total annual output capacity due to the sharp drop of iron ore prices. The ability of these mines to control such a sustained price fall for one of the major ingredient in steel making has long been debated since a fixed annual pricing was abolished five year ago to give way to short term indexing.
The domestic mining industry is highly fragmented having several producers located in coastal areas which are now facing some of the highest costs in the country with prices that are well above the price of imported iron ore. A higher cost of 40-50 tons of Chinese mine production is seen especially in those found in coastal areas where the iron ore is of lower quality. Further mine closures will benefit companies such as Fortescue Metals Group, Rio Tinto and BHP Billion that mines Australian Pilbara iron ore on a much higher margin of profit.
Late last week the price of iron ore dropped to a 21 month low of US$ 91 a ton, as an excess in supply smothered that market which was paired with a slow demand for steel in turn brought prices down by a third for this year. Iron ore dropped to US$60 a ton in 2009 in which the country saw large closures in the domestic mining sector as most of the local mines had trouble operating for profit.