When iron ore hit a five-year low, the mining industry knew it was bad. Now, the price of the commodity is under that five-year low, hovering around $US68 on Wednesday. This is the lowest price since July of 2009.
China’s manufacturing industry drove the high price of iron ore in the last few years but as the country’s economic growth slows, the price of iron ore plummets. The price has decreased steadily since March of this year, to the tune of a 49 percent slump. As output of iron ore, used to make steel, increases, demand decreased.
Citigroup, commenting on the situation, believes that the raw material may lose even more value and fall to under $US60 a tonne. But Vale SA, the world’s biggest iron ore producer, has hope that this will not be the case.
In a bold prediction Vale has said that the commodity will rally by at leat 24 percent in 2015, to potentially an average range of $85 to $90. The company credits this to mines with high costs shuttering up and Asian infrastructure demand improving.
“There was a lot of volatility in prices this year and the market is undershooting at the moment and this will bring about a correction,” Murilo Ferreira, Vale chief executive shared. “This correction will come through the closure of many inefficient miners of high cost and poor quality iron ore.”
This sense of optimism is pervasive through the major iron ore producers like Rio Tinto and BHP Billiton—companies that have expanded their output, betting that their increase will offset dropping prices and eventually force less competitive mines to close.
Information sourced from Financial Review.