SYDNEY, June 16 This year's sharp drop in iron
ore prices could force China to close up to 80 million tonnes of
domestic mine production, more than a fifth of its total annual
output, consultancy Wood Mackenzie said on Monday.
The ability of mines in China to weather a sustained fall in
prices for the steel-making ingredient has been debated since
fixed annual pricing was scrapped five years ago for short-term
China's domestic industry is highly fragmented, with
producers in coastal areas believed to be facing some of the
highest costs in the country -- well above the price of imported
Wood Mackenzie analyst Andrew Hodge said that further mine
closures would likely benefit Rio Tinto , BHP
Billiton and Fortescue Metals Group,
which mine the Australian Pilbara iron ore belt on much higher
Brazil's Vale would also gain, he said.
The benchmark iron ore price .IO62-CNI=SI dropped to a
21-month low of $91.50 a tonne late last week, as a supply glut
smothered a market faced with slower steel demand. The price has
plunged a third so far this year.
Hodge estimated at least 40-50 million tonnes of higher cost
Chinese mine production, mostly in coastal areas where iron ore
is typically of lower quality, was already earmarked for
He said that could rise to as much as 80 million tonnes
given the price outlook for the rest of 2014.
"The bulk of private production in the coastal region will
be in distress at current levels," Hodge told a media briefing,
putting China's total domestic production at around 350 million
tonnes a year.
When iron ore prices plummeted as low as $60 a tonne in
2009, China saw "huge closures" in the domestic sector as local
miners were unable to operate at a profit, he said.
Hodge said there had already been some mine closures, but
these were not yet widespread.
Rio Tinto breaks even at around $43 a tonne, while BHP needs
a $45 iron ore price to stay in the black.
Vale's is higher at $75 a tonne due to the greater distance
from Brazil to China.
Fortescue, whose costs are steeper due to its lower grade
ore, said on Monday it would spend $275 million building four
iron ore vessels of its own to help reduce reliance on outside
Hodge expects iron ore exports by Australia to rise by more
than 100 million tonnes this year.
(Reporting by James Regan; Editing by Joseph Radford)