Iron ore falls below $US70 per tonne: Who’s losing money now?

Overnight the spot price of iron ore fell to just $US69.58 per tonne.

By comparison, this time last year it was fetching around $US136 per tonne and everyone was happy.

But at such a low price, less than a handful of Australian miners are now making worthwhile profit margins.

Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP) have estimated break-even costs of approximately $US43 and $US50 per tonne, respectively. So they’re still making money.

Fortescue Metals Group Limited (ASX: FMG) could be making a decent margin with a spot price around $US70 per tonne but its ore is of lower quality than its two larger peers and therefore attracts a lesser price. In its recent AGM presentation it claimed to have an: “All in cost equivalent to US$58/dmt,” although some analysts believe its break-even cost is higher than that.

With such uncertainty moving forward and a balance sheet holding a heap of debt, there’s reason to be wary of Fortescue shares.

Moving further down in size, at today’s prices, mid-tier producers BC Iron Limited (ASX: BCI), Gindalbie Metals Ltd. (ASX: GBG) and Atlas Iron Limited (ASX: AGO) are unlikely to be making a profit.

Foolish takeaway

In the near future demand for iron ore from Chinese steel mills is being tipped to fall in a big way, just as a wave of new supply is coming online. So at today’s prices, Foolish investors would be wise to steer clear of all medium and high costs producers.

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Motley Fool Contributor Owen Raszkiewicz is long December 2017 $47 warrants in Rio Tinto. 

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