Low iron ore prices may force China to close more mines, Wood Mackenzie report

15 June 2014 (Last Updated June 15th, 2014 18:30)

The continuous fall in the price of iron ore this year could force China to close more mines and reduce domestic production by around 80 million tonnes (Mt), according to a report by UK-based energy, metals and mining research and consultancy group Wood Mackenzie.

The continuous fall in the price of iron ore this year could force China to close more mines and reduce domestic production by around 80 million tonnes (Mt), according to a report by UK-based energy, metals and mining research and consultancy group Wood Mackenzie.

The price of iron ore dropped to a 21-month low of $91.50 per tonne last week, driven by slow demand for steel.

The situation could force many miners in the country to cease operations, especially those in coastal areas where iron ore is of a lower quality.

"The price of iron ore dropped to a 21-month low of $91.50 per tonne last week."

Wood Mackenzie analyst Andrew Hodge was quoted by Reuters as saying that further mine closures would likely benefit Rio Tinto, BHP Billiton and Fortescue Metals Group, which have mining operations at the Australian Pilbara iron ore belt on much higher profit margins.

According to Hodge, mines in the coastal areas that produce around 40Mt to 50Mt of higher-cost iron ore would close their operations.

Hodge said that could rise to as much as 80Mt given the price outlook for the remainder of the year.

"The bulk of private production in the coastal region will be in distress at current levels," Hodge said.

Meanwhile, Australian iron ore company Fortescue Metals Group, whose costs are steeper due to its lower-grade iron ore, said it would spend $275m to build four iron ore vessels of its own to help reduce reliance on outside shippers.

According to Hodge estimation, iron ore exports by Australia will increase by more than 100Mt this year.

Energy