Investing in Australian iron ore

Iron ore prices decreases

Iron ore prices has decreased steadily over the last 10 months and apparently the largest impact resulted because of the influence coming from China. There has also been actually an increase in ore production and that at the time when the demand has been lower. The minimum standard of 62% iron content which are required by China which include freight and insurance has actually dropped in price and are now only fetching prices of less than $50 per ton. This is something which has been encountered for some time now and a constant decrease in price has been seen. This decreasing prices has been making it very difficult for producers to make a decent profit and it has placed a substantial amount of pressure on the industry.

A few months of respite

There has been a couple of months where iron prices has been above $60 and this has provided smaller iron producers with a little breathing room. This has allowed small producers with an opportunity to reduce production cost as much as possible in order to allow for a reasonable profit. Unfortunately investment analysts are predicting that the ongoing reduction in prices will continue to make things very difficult for the small producers and many may not be able to deal with the constant pressure. The industry has reached a point where the producers of iron are not making any money nor are they losing any and where they have very little maneuvering room.

Estimated breakeven prices

There are some minor disagreements when it comes to the issue of determining a price at which producers will break even, in other words they do not make profits and neither are they losing any money. The investment bank sets a comfortable figure of $52 for a ton of iron but other sources have come to different conclusions as some have suggested $49 per ton while others are saying that such a breakeven figure could be as low as $44 per ton. However there are some producers that are claiming a breakeven price of $41 per ton which will certainly benefit those producers and will make it easier for them to weather the current situation.

Other factors

There have been many contributing factors to the current situation such as stricter measures by governments to penalize industries that are contributing to pollution and there has also been a decline in fixed investments. There has been some efforts on the part of the Chinese government to stimulate the economy but this has not been very successful and has done very little to boost investor confidence. There is a very real possibility that the situation will deteriorate even more before a significant recovery could be expected. There are a widespread agreement among analysts that the situation are only temporary and that the demand for steel would recover soon enough. Things are expected to return to their former status before the end of 2015. Investors will have to research the facts carefully before they commit themselves in order to avoid any nasty surprises.

Iron Ore Prices - Investing in Australian iron ore 


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Australian ore resources

Understanding the facts

Australia are in the fortunate position that iron ore could be found basically all over the country. It is however in the western parts of the country that most of its iron resources could be found. In fact over 90% of all resources are concentrated in this area which according to statistics represent over 64 billion tons of iron ore. This makes this area one of the most mineral rich areas in the world. According to extensive research which has been conducted in 2009 it has been determined that the amount of iron ore which could be economically extracted amounts to about 28 billion ton which places Australia in the second place behind Ukraine as far as iron ore are concerned.

Predominantly open cut mines

Most of the iron ore mines all over the planet are mostly open cut mines. The mines in Western Australia are no exception and hundreds of tons of iron ore transported to various refinery installations for further treatment. Railway transport are frequently used to deal with the large volumes of iron ore which has to be transported. Some of these trains over 2 km in length and carries more than 25,000 tons of iron ore. Two of the largest iron ore producers in Australia are BHP Billiton and Rio Tinto Ltd. Some of the mines which are specifically managed by BHP Billiton are the Mount Newman joint venture as well as 3 other mines in the area. Most of the ore which are produced by this mines are transported by rail to Port Headland from where it is exported while some is transported to Australians steel works. A very large portion of this iron ore are further crushed and blended at the port.

The contribution of Rio Tinto Ltd.

Several mines are operated by this corporation such as the Mount Tome Price, Brockman 4 and several others. A very large portion of the iron ore which are produced by these mines are transported by rail to the Port of Dampier where it is further blended and screened before it is exported. Although there are fewer deposits in South Australia there are still some iron ore which are extracted from the Middleback Ranges by OneSteel limited and most of this are exported but a certain portion is also used for iron and steelmaking in Whyalla. There are many such mining interest all across Australia that are contributing substantially to the total iron production of this country. There several smaller mining operations all across Australia where iron ore are mined on a smaller scale mostly involving between 50,000 and 100,000 tons annually.

A large contributor

According to available statistics Australia produced almost 400,000,000 tons of iron ore in 2009 which amounted to an export value of over $30 billion. Western Australian contributed 97% of that amount. Australia are the largest exporter of iron ore while they are the second largest producer after China. Australia has a highly sophisticated iron producing industry which specializes in the production of very high quality iron and steel products. Australia are likely to remain one of the primary contributors to the global steel industry.

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