“Iron ore prices will continue to fall, we expect as much as one third of small local miners will be forced to close down in the coming three to six months,” said Pan Guocheng, president and ceo of China Hanking Group, a domestic iron ore producer in the north-east of the country.
A second miner based in Tangshan, in China’s steelmaking hub of Hebei province, also warned that more small miners would have no choice but to stop producing in response to the current bearish market situation. More than half of the small miners in the region have now shut down due to profitability issues.
Iron ore prices have tumbled by more than 40% this year on massive oversupply and worries over demand from key consumer China. More than 80 million tonnes of new seaborne supply came into the market in the first half,
with a further 60-75 million tonnes expected for the second half of 2014, while prices remain at five-year lows.
Metal Bulletin’s index for 62% Fe iron ore stood at $75.87 per tonne cfr China on Tuesday November 12, the lowest level since September 2009.
“We are now running at around 30% of our capacity, down from 40-50% two or three months ago, while levels were above 80% a year ago,” the Tangshan miner said.
Roughly one fifth of small domestic miners have already closed down due to unprofitable business, Hanking’s Pan noted.
Iron ore prices may slump to as low as $70 per tonne in the next three to six months, he predicted.
Pan’s sentiments were echoed by Li Fuli, vice gm of China’s Minmetals Group, who warned delegates at a recent industry conference that growing numbers of the country’s smaller iron ore producers are being pushed to the brink of bankruptcy.
However, domestic production levels are likely to remain largely unaffected as state-owned mines and private operations in other areas of the country will continue, participants said.
“Current shutdowns are mainly limited to small and private mines based in northern provinces such as Hebei, Shandong and Liaoning,” an analyst from Beijing said. Miners in other major iron ore production hubs, such as Inner Mongolia, Sichuan and Xinjiang, will continue operations, he added.
“We don’t expect to see a big production fall in areas like Sichuan and Xinjiang, as mills there cannot use imported iron ore due to prohibitive shipping costs,” the analyst added.
Meanwhile, subsidised state-owned mines are unlikely to see any stoppages in the near term, analysts noted.
About half China’s domestic iron ore mines – comprising 200 million tonnes of supply – are state-owned and also vertically integrated with nearby steel mills. As steelmakers remain profitable due to cheaper raw materials, demand for iron ore is stable, which in turn supports the local mines, Australian investment bank ANZ said in a research note on Monday.
The bank also cut its average 2015 iron ore price forecast by 22% to $78 per tonne
, with prices expected to remain under $100 per tonne for the next 12 months.
Data from the National Bureau of Statistics also showed that run-of-mine output in September was at 137 million tonnes, down 0.4% from last year. Total production in the first three quarters, however, was at 1.05 billion tonnes, up 7.2% year-on-year.