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Tuesday, December 27, 2016

Investing in Australian iron ore

Iron ore prices decreases

Iron ore prices has decreased steadily over the last 10 months and apparently the largest impact resulted because of the influence coming from China. There has also been actually an increase in ore production and that at the time when the demand has been lower. The minimum standard of 62% iron content which are required by China which include freight and insurance has actually dropped in price and are now only fetching prices of less than $50 per ton. This is something which has been encountered for some time now and a constant decrease in price has been seen. This decreasing prices has been making it very difficult for producers to make a decent profit and it has placed a substantial amount of pressure on the industry.

A few months of respite

There has been a couple of months where iron prices has been above $60 and this has provided smaller iron producers with a little breathing room. This has allowed small producers with an opportunity to reduce production cost as much as possible in order to allow for a reasonable profit. Unfortunately investment analysts are predicting that the ongoing reduction in prices will continue to make things very difficult for the small producers and many may not be able to deal with the constant pressure. The industry has reached a point where the producers of iron are not making any money nor are they losing any and where they have very little maneuvering room.

Estimated breakeven prices

There are some minor disagreements when it comes to the issue of determining a price at which producers will break even, in other words they do not make profits and neither are they losing any money. The investment bank sets a comfortable figure of $52 for a ton of iron but other sources have come to different conclusions as some have suggested $49 per ton while others are saying that such a breakeven figure could be as low as $44 per ton. However there are some producers that are claiming a breakeven price of $41 per ton which will certainly benefit those producers and will make it easier for them to weather the current situation.

Other factors

There have been many contributing factors to the current situation such as stricter measures by governments to penalize industries that are contributing to pollution and there has also been a decline in fixed investments. There has been some efforts on the part of the Chinese government to stimulate the economy but this has not been very successful and has done very little to boost investor confidence. There is a very real possibility that the situation will deteriorate even more before a significant recovery could be expected. There are a widespread agreement among analysts that the situation are only temporary and that the demand for steel would recover soon enough. Things are expected to return to their former status before the end of 2015. Investors will have to research the facts carefully before they commit themselves in order to avoid any nasty surprises.

Iron Ore Prices - Investing in Australian iron ore 


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