Price of iron ore

Price of Iron Ore

Price of iron ore

The price of iron ore has had a direct impact on mining jobs activity in the past. What does the future hold for careers in iron ore mining when the iron or price could slip once again?

Will there still be opportunities for mining jobs in the iron ore rich Pilbara region?Australia has been a leading iron ore producer for years, with major projects in Western Australia at last coming on-line and starting production. Increasing iron ore output and raising the export tonnage has been a focus for the big three Australian mining companies.

Rio Tinto, BHP and Fortescue Metals Group are the big players in the iron ore business, with Gina Reinhart’s Roy Hill project finally off the drawing board. This new mine will significantly increase the amount of iron ore export volumes from the heart of WA’s ore tenements.

Will China still drive iron ore demand?

Australia, as well as Brazil are set to become the major iron ore mining hubs in the world, catering for China’s steel demand as the country ramps up their manufacturing and export capacity. Despite a reduction in the spot price of iron ore over the next few years as forecast by the  Bureau of Resources and Energy Economics (BREE), the outlook for Australian iron ore exports looks very strong indeed.

A predicted increase of 8 percent per year to 2018 will see exports of the precious resource to reach 831 million tonnes per year. Other countries like Korea are expected to increase their iron ore imports by 4 percent due to increasing motor vehicle production,whereas the European and Japanese markets have a more modest growth forecast of 1%.

Over the medium term China’s reliance on their own domestic iron ore will become a problem owing to the low quality ore grades which are not suitable for their future steel production requirements. Production at China’s blast furnaces continue to hover at near record levels of 2 million tonnes a day ““ April was the second busiest month on record. Steel stocks at the country’s major ports have also dropped more than 25 percent from 2012 levels of around 100 million tonnes.

Therefore, we are expecting to see Australia filling the gap in the iron ore import market and with increased iron ore mining and logistics investment, the predicted 8 percent increase in productivity could be a win for Australian mining companies.

At a recent iron ore and steel conference, the expectation was that a steady iron demand from China is expected to continue for the next 10 years.

BHP CEO optimistic about iron ore prices and China’s growth

Recently the new CEO of BHP Andrew Mackensie, who took over from Marious Kloppers, says he’s optimistic about iron ore demand from China and the future is not all doom and gloom.

The new CEO met with the Chinese Premier Li Keqiang who indicated an expected and sustainable 7% growth for China in the coming years, signalling an air of optimism for the Australian mining industry.

Independent analysts recently commented that the outlook for China’s economic growth is also on track. They also raised the issue of large stockpiles of iron ore being the catalyst for the falling commodity price.

Expectations are that the price of iron ore will hover around the $100/tonne price point this year and next, however, the 5 year outlook may see the iron ore price dip to $72 a tonne.

BHP’s profit margin is directly affected by the price drop, as would be a similar outcome for other iron ore mining companies in Australia.

For every $1 price drop in the price of iron ore, BHP’s net profit after tax, is reduced by $110 million. This has led the miner to focus on cost reduction strategies to remain competitive in a volatile market.

Strong profit margins despite falling iron ore prices

Mackenzie was quoted as saying for every 1% saving translates to an additional profitability of $170 million per year.

If you factor in the future price forecast of iron ore to hit $72 a tonne, mining companies like Rio Tinto and BHP will still realise a healthy profit margin of between $35 and $40 a tonne. Fortescue Metals Group on the other side of the scale, who have costs of around $80 a tonne, would be adversely affected; although with new mines coming on-line and productivity improving, Fortescue are placed to face the future challenges head on.

Some of the smaller iron ore producers in the Pilbara like BC Iron and Atlas Iron would also be looking to the future and seriously considering how to maximise their costs, raise productivity and perhaps even join forces with other smaller producers to share infrastructure and port facilities to remain competitive.

Iron ore price and mining jobs

Does the price of iron ore directly affect mining jobs? The answer to that for most people would be yes. In terms of simple business economics, there has to be a market to sell to. Australian mining has enjoyed many years of high iron ore prices, creating a buoyant economy and literally thousands of jobs in the mines.

When the price of iron ore hit an all time high of over $190 a tonne in February 2011, there were healthy profit margins, allowing mining companies to employ a burgeoning workforce as the cash just kept on rolling in.

Chinese demand for iron ore was fueled by their ubiquitous urbanization programs. This created a boom time for Australian iron ore miners.

In the latter part of 2012, the iron ore trading price slumped China decided to throttle down the imports owing to internal political change and a review of their spending and investment policies. With the price of iron ore plunging to around $87/tonne, profit margins were hit hard, resulting in a reduction of the mining workforce.

More recently, the iron ore price has hovered around the $120/tonne mark. iMINCO recently surveyed the top three iron ore producing mining companies and their iron ore costs and margins, listed below.

Costs and profit margins at the iron ore price of $166/wet metric tonne

  • Rio Tinto: Extraction & Export costs $us41/tonne – profit margin: $73
  • BHP: Extraction & Export costs $us45/tonne – profit margin: $70
  • Fortescue Metals Group: Extraction & Export costs $us89/tonne – profit margin: $13

Even though mining companies are big business with huge cash-flows, when your customers start to place fewer orders and they also dictate what price they are willing to pay for your products, it becomes a game of survival for many miners with future mining projects being put on the back-burner and job cuts on the radar.

Iron ore price and productivity

Over the past 12 months, significant investment in infrastructure development in the WA Pilbara has paved the way for more efficient methods to get the ore out of the ground, transported across vast distances via huge rail networks direct to the Pilbara loading stations of Port Hedland.

Australian mining companies operating out of the Pilbara are driven by the realisation their investments in mining automation and advanced logistics systems are now paying off.

Fortescue are seeing instant results as their new Firetail iron ore mine and processing facility comes on-line and starts to pump out the ore, significantly increasing the export capacity for the miner and allowing them to compete with Rio and BHP for a larger slice of the export iron ore market.

Mining careers in iron ore start in the Pilbara, in Western Australia.

Mining jobs in WA will always be driven by the iron ore industry in the North Western region of the Pilbara. At iMINCO, we are constantly asked where to start looking for mining jobs and what experience, training and qualifications are required.

Everyone is different; not everyone has the mindset to work in remote mining locations on a FIFO roster, however, the rewards are great if you are prepared to knuckle down, stick it out and do the work.

Mining jobs boards like SEEK area good place to start looking for Pilbara mining jobs, as well as the mining careers offered on the mining company websites below.

Jobs at Rio Tinto:  click » for Rio Tinto careers and learn about the Rio Tinto recruitment process

BHP Jobs: click » for a list of BHP jobs and BHP mining job alerts

Jobs at Roy Hill:  click » for Roy Hill Pilbara jobs and mining construction jobs

Fortescue Jobs: click » for Fortescue mining jobs and mining apprenticeships

Reference: Price of iron ore | mining jobs

iMINCO Mining Information Training Recruitment

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