Despite the share prices of BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) sinking by around 22%, 14% and 52% respectively in 2014, these three companies are still giants both in terms of market capitalisations ($150 billion, $106 billion and $9 billion respectively) and also in terms of dominating the Australian iron ore export trade.
A year to forget
The sinking share prices of these widely owned companies followed the unexpected and sever fall of approximately 50% in the iron ore price which is currently sitting at just over US$71 a tonne. While this represents a massive fall, the worry for investors is that there could still be further falls ahead!
Just before Christmas the Department of Industry came out and slashed its forecast for the average iron ore price for 2015 from US$94 a tonne to just US$63 a tonne. This compares with an average price in 2014 of US$88 a tonne, according to the report.
Better times ahead…
While the outlook for the iron ore price isn't favourable there are reasons for investors to be positive about the prospects of established iron ore producers.
Prices in the second half of 2015 are expected to improve as some high cost producers cease production. This scenario should benefit the majors and also benefit the highly leveraged, smaller producers who can survive the downturn.
Atlas Iron Limited (ASX: AGO) could be one such beneficiary. Atlas did an outstanding job over the course of 2014 to lower its all-in cash costs of production from over US$80 per wet metric tonne (wmt) to US$65 wmt. The market looks to already be growing more positive on the company's outlook with the stock rallying 76.5% in the past five days after having sunk 86% in 2014.
