When one of the lowest cost iron ore producers on the planet Rio Tinto Limited (ASX: RIO) announces that it has stopped hiring staff in an effort to cut costs, you know that the company is expecting lower prices.
Rio iron ore boss Andrew Harding reportedly sent a memo to staff this month announcing aggressive cost cuts and stressing the importance of Rio maintaining its lead as the lowest cost producer in the Pilbara, according to the Australian Financial Review.
It is widely accepted that BHP Billiton Limited (ASX: BHP) has production costs nearly as low as Rio's with both estimates in the low US$40 per tonne. Apart from Brazil's giant iron ore miner Vale, virtually no other miner comes close.
Fortescue Metals Group Limited (ASX: FMG) is estimated at around US$70 per tonne, while juniors like Atlas Iron Limited (ASX: AGO) and Mount Gibson Iron Limited (ASX: MGX) are reported to have all in production costs around US$80 per tonne, as does Arrium Limited (ASX: ARI).
They are obviously running as fast as they can to get those costs lower – particularly with the spot iron ore price trading around US$62 per tonne – and likely to head even lower.
ANZ recently downgraded its forecasts for this year to US$58 per tonne, and 2016 to US$60 per tonne, but that may well be too high. Noted iron ore bear and Shanghai-based economist Andy Xie says he expects US$30 per tonne this year. And that's for the benchmark price. Many Australian iron ore miners receive a lower price because they produce lower grade ore – which receives a discounted price.
The problem for the miners already struggling is that they may not see a recovery before they are forced to close their mines. If you want to see what the future is like for iron ore, you might be interested in this article from the Motley Fool Pro team, which recently spent some time researching that very fact in China itself.
