Sustaining a profitable iron ore mining operation can depend on the iron ore price.
Despite the roller coaster ride of the iron ore price, volatility can quickly turn into opportunity for big mining companies.
In a recent news†item, iMINCO reported on the fluctuations in the iron ore price in Australia and how it affected the operating profitability of Australia mining companies. The big Australian mining companies like BHP and Rio Tinto have reported how much their profits can alter when the price of iron ore moved up or down.
Downward prices of iron ore though don’t always affect the larger mining companies by creating an immediate operational crisis. Some of the smaller miners can feel the effect quite quickly.
The recent small percentage rise in the iron ore price in March 2014, has allowed Rio Tinto and BHP to keep their profits high.
A $1 change equals a $133.1 million profit or loss for Rio and BHP
A $1 rise in the iron ore price translates to $133.1 million in profit for Rio and BHP. Trading around $US110.50 to $110.70 a tonne, this new upward movement to $US111.80, although only slight, is a positive sign for the mining industry.
Price fluctuations in the price of iron ore have been quite dramatic this month, causing a few mining company accountants to ‘wince’ as profits were eroded. Consider the effects of iron ore pricing dropping from $114 a tonne to $104 a tonne and the affect that has on the profits of Rio and BHP.
Lost profits somewhere in the region of $1.3 billion were commonplace as the iron ore price edged close to the $100 a tonne mark.
“stability in the Australian mining jobs market”
As China and other Asian countries continue to re-evaluate their immediate urban and industrial growth programs, a high iron ore price equates to stability in the Australian mining jobs market.
Iron ore price – the future
Future forecasts for iron ore demand paint a not-so-rosy future for the global trade in the precious steel making ingredient. As with any industry, the markets can change at a moment’s notice and volatility can quickly transform into opportunity.
“increasing construction activity”
The Bureau of Resource and Energy Economics (BREE)†has indicated in a new report the average FOB Australia iron ore spot price is still expected to average $US111 a tonne for the March quarter and recover later in 2014. This is partly due to the increasing construction activity in the northern summer that should stimulate a price rebound.
“iron ore is directly linked to an expansion in global supply”
BREE also shed light on the future of exports from Australia, which it says will increase, although it expects the iron ore price could tumble. The bureau expects the spot price of iron ore to fall from its average price of US$126 ($136.82) a tonne in 2013 to $US87 by 2019. This figure was reached because in their view, the price of iron ore is directly linked to an expansion in global supply.
The bureau also said it didn’t see the price of iron ore being driven by a fall in demand in the Chinese or other markets, rather it is a cyclical adjustment and part of the normal commodity cycle.
Iron ore exports set to increase from Australia
Iron ore exports, according to the bureau, are set to increase by 8 per cent a year by 2018-19 to 847 million tonnes as new supplies from mines like the Roy Hill project come on line.
The latest fall in the price has not been a threat to West Australian iron ore miners Rio Tinto and BHP Billiton, owing to productivity efficiencies, improved logistics and on-site processing facilities.
Commodities analysts have indicated BHP Billiton and Rio Tinto could manage to maintain mining operations even if the iron ore price dived to $US60 a tonne.
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