WA mines may close if iron ore drops below $US80 says report by China-based analyst Ian Roper

IRON ore prices are set to hit a fresh five-year low, but experts are divided on the outlook for Australia’s most important commodity.

Heavy earth moving trucks at the Tom Price iron ore mine, operated by Rio Tinto Group, are lit up by the afternoon sun in Pilbara, north Western Australia on Wednesday, July 26, 2006. BHP Billiton Ltd., the world's largest mining company, is losing the support of investors and steelmakers for its proposed $128 billion takeover of Rio Tinto Group. Photographer: Jack Atley/Bloomberg News

IRON ore prices are set to hit a fresh five-year low, but experts are divided on the outlook for Australia’s most important commodity.

Chinese iron ore futures were down around one per cent today, making it likely the price of the commodity will finish the day below the $85 mark.

Iron ore prices dropped to $85.70 yesterday amid growing concerns about China’s property market and an oversupply of the steel-making commodity.

And several China watchers warn further falls are ahead, including Shanghai-based CSLA analyst Ian Roper, who expects iron ore prices to fall to around $75 in the longer term.

In a report this week, Mr Roper said the supply of iron ore was growing at nearly twice the rate of demand for the commodity in China.

He said if the price falls below $US80 a tonne for a prolonger period, more than 80 mines worldwide will need to close, including 13 in Australia.

“The key issue for the iron ore market is that for the first time in over 10 years the job of the iron-ore market/price is now to eliminate supply, rather than incentivise it,” he said.

The price slide threatens a number of higher cost Australian producers, including Atlas Iron, which has a break-even point in the low-to $US80 a tonne range.

A report this week states that the supply of iron ore was growing at nearly twice the rate of demand for the commodity in China.

But CMC Markets chief market strategist Michael McCarthy said the price slide was good news for low cost producers like Rio Tinto and BHP Billiton, which have a break even price of around $US42 and $US51 a tonne, respectively.

“In the longer term this probably falls right into the hands of Australian producers, who are among the highest quality and lowest cost producers in the world,” he said.

The fall in prices didn’t hurt the share price of Australia’s other big producer, Fortescue on Thursday, which was buoyed by news of record production and shipments during August.

Fortescue shares overcame general market weakness to lift five cents to $4.05.

But Mr McCarthy does not expect the current price slide to last, and is forecasting an average price of between $US100 and $US110 a tonne for the next 12 months.

“I would expect to see some recovery in prices soon,” he said.

“Steel demand is continuing to grow in China, albeit at a slower rate, but its still growing.”

Originally published as WA mines may close if iron ore drops below $US80 says report by China-based analyst Ian Roper