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Iron ore price drop would leave Australian miners at risk

Iron ore price drop would leave Australian miners at risk

Small-scale junior iron ore miners in Australia could face serious damage to their portfolios if prices drop in the near future. In a market that is known to be highly cyclical, a recent downturn in iron ore prices after a quarter of sustained growth is a cause for concern to the smaller mining operations, such as Atlas Iron, BC Iron and Arrium, that have been riding the wave of the boom.

Chinese market analysts have warned that the rise in prices, combined with the downturn in the dollar, has provided this halcyon period for small-scale miners, and that the recent downward trend is looking ominous for those same operators. This price drop comes off the back of China’s attempts to curb infrastructure spending and rectify its growing debt.

Roselea Yao, a market analyst from Gavekal Dragonomics in Beijing, has stated that the drop in prices back to US$80 per tonne is part of a correction in an inflated market. Yao stated that: “the fundamentals are so poor, vulnerable to any bad news or policy changes”.

After hitting a new price low at US$40 per tonne in late 2015, iron ore has undergone a gradual rebuilding in the stock markets as a result of increased Chinese demand, peaking at US$95 in February 2017.

Global predictions on the direction of the price index in the future agree that the price will continue to fall in the short term, with HSBC experts expecting as low as US$39.

Minelife senior resources analyst, Gavin Wendt, told the ABC that he expected a fall of around a third to US$50-60, and warned the junior miners were still at most risk.

“The juniors in Australia have a break even cost of production of around $US60 a tonne,” he said. “So as the iron ore price decreases, it’s sleepless nights for a lot of those managing directors.”

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