Iron Ore Metals Report Q2 2016
BMI View: Globally, iron ore prices will remain subdued due to weak demand growth in China andexpanding output by major miners in Australia and Brazil. China will see output slow as the country's ironore miners operate on the higher end of the global iron ore cost curve.
Latest Developments & Structural Trends
Global iron ore production will grow minimally from 3,036 million tonnes (mnt) in 2016 to 3,165mnt by2020. This represents an average annual growth of 0.3% during 2016-2020, significantly lower than theaverage growth of 4.0% during 2011-2015. On the one hand, supply growth will be primarily driven byAustralia and Brazil due to expanding output by major miners, such as Rio Tinto, BHP Billiton, Valeand Fortescue Metals. On the other hand, miners in China, which operate on the higher end of the ironore cost curve, will be forced to cut output due to continued iron ore price weakness.
Australian producers, most notably Rio Tinto, BHP Billiton and Fortescue Metals Group, will takeadvantage of their low-cost sitting in the global cost curve and seek to capture more market share at theexpense of higher-cost producers. For instance, BHP Billiton, one of the country's main iron oreproducers, reported cash costs for 2015 at USD18.7/tonne, down from USD27.0/tonne in 2014. Rio Tintonoted production costs of USD15.0/tonne during 2015. BHP, Rio Tinto and Fortescue will continue toinvest in existing operations. According to Rio Tinto, 2016 capital expenditure (capex) is expected toremain under USD6.0bn.
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