Iron ore prices have had a steady fall over the past 18 months, but appear to have stabilised – at least in the short term at around US$50 per tonne. For the major iron ore miners like Rio Tinto Limited (ASX: RIO), Brazil's Vale and BHP Billiton Limited (ASX: BHP) with super-low production costs, it does mean lower profits, but at least they are making a profit based on C1 cash costs (which doesn't include some necessary expenses).
The following chart shows my rough (very rough) calculation of gross profits for seven of Australia's iron ore miners, including BHP, Rio, Fortescue Metals Group Limited (ASX: FMG), BC Iron Limited (ASX: BCI), Arrium Ltd (ASX: ARI), Mount Gibson Iron Limited (ASX: MGX) and Atlas Iron Limited (ASX: AGO).
The chart shows two important points. Mount Gibson and Atlas Iron receive much lower prices for their iron ore, due to the quality of their ore, while also having correspondingly higher production costs.
An important point to note is that almost all of these miners expect to see much lower production costs in the year ahead. BHP expects cash costs to fall to as low as US$15 per tonne – in some cases, a third of the cost of some of the junior miners like Mount Gibson and BC Iron.
The problem for all these companies is that iron ore prices are forecast to fall further. Look out below!
