The Peak Of The Iron Ore Boom ?  

Posted by Big Gav

The SMH has an article from John Garnaut on the China driven iron ore boom and the impact on Australian and Chinese miners - How lucky to sit at the peak of a boom

On the north bank of the Tumen River, which separates China from North Korea, the old caretaker of an otherwise abandoned village shows us where his boss has stashed his savings. Those savings consist of 30 tonnes of iron ore sand which he scraped from the riverbed and dumped in a pit when prices were low, and which he will now sell because prices are high.

He and another half dozen mini-miners within a short walk upstream have been collecting sediment washed down from a mine 60 kilometres away on the North Korean side at Musan.

Neither sandminers like Wang nor smugglers from North Korea are likely to trouble Rio Tinto, BHP Billiton or Fortescue, which together exported a staggering $4.7 billion in iron ore in June, according to the Bureau of Statistics. Iron ore has now vaulted above both metallurgical and thermal coal combined. The value for July will be substantially higher, reflecting new quarterly contract prices, and they will ease back again from October.

This will mean the value of Australia's iron ore exports will rise from a staggering 4 per cent of national income in the June quarter to about 5 per cent in the September quarter. ...

Whereas Australian miners don't bother with iron ore grades lower than 55 per cent, the best estimates are that China's average iron ore grade has fallen from a bit less than 30 per cent to about 24 per cent in the past four years. ...

Collectively, China's iron ore miners are an enormous swing factor that partly stabilise prices. Producers at the top third of the Chinese cost curve - even those with iron ore content of less than 10 per cent - have been digging at close to full throttle since domestic spot prices rose above about $US120. They will fall away when prices fall below that threshold.

Iron ore spot prices have recently surged back up to about $US150 but they will fall back down with rising Chinese production and the end of the Indian monsoon season.

Further out, prices will steadily slide as Rio, Vale and BHP and also China's new overseas mines steadily ramp up production.

While Wang has been scraping wafer-thin margins out of the Tumen River it is worth considering that Rio Tinto and BHP Billiton are mining iron ore in the Pilbara at a cost of about $US20 per tonne and paying freight to China of between $US8 and $US10.

Rio is receiving a little under $US160 in this September quarter and is on track to get a bit under $US130 for the December quarter (BHP is getting less but only because of timing differences). Subtract those production and freight costs from contract prices and you can begin to grasp what luck it is to be an Australian at the peak of a once-in-a century resources boom.

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