No respite for shuttered iron ore miners as rally falls short

MANILA (Reuters) - While this year’s spectacular rebound in iron ore prices has been a godsend for the world’s biggest miners, it has not gone high enough for smaller, less-efficient producers that still have pits shuttered and equipment idle.

The price of the steelmaking material has nearly doubled in 2016 to above $80 a ton, a boon for miners such as Vale, BHP Billiton and Rio Tinto which extract the material at a cost of less than $20 per ton.

But smaller producers from China to Sweden still face hard times as their output costs can be as much as $100 a ton due to lower grades and fewer economies of scale.

“Every mine I know remains shut down,” Pan Guocheng, chief executive of mining company China Hanking Holdings Ltd, told Reuters by phone.

He said about half of production capacity is closed in China’s northeastern province of Liaoning, where Hanking’s mines are located. The company has shut three smaller mines in the last few years.

“This price increase is not sufficient enough to let (mines in the province) reopen with some new capital injections.”

Hanking is among a handful of privately-owned iron ore miners still in business in China, with many closed as a global glut slashed prices to a record low of $38.30 a ton in December, 2015 from a peak of $191.70 more than four years earlier.

Elsewhere, Swedish state-owned mining firm LKAB will mothball its Mertainen mine as it would not be profitable to put it into production, resulting in a $128 million asset writedown.

And in Iran, private iron ore miners are hesitating to reopen as they are not confident the market will “sustain at a high level” for a substantial period, said Keyvan Ja’fari Tehrani, head of international affairs at the Iranian Iron Ore Producers and Exporters Association.

Iron ore has largely piggybacked on the strength in prices of Chinese steel amid Beijing’s campaign to slim its bloated steel sector and efforts to stimulate its economy. That fed bullish bets in China’s futures markets, lifting spot prices by 83 percent.

But Julius Baer analyst Carsten Menke said “prices have moved too far, too fast” and sees them recoiling to $65 in three months, before dropping to around $50 a year from now.

Goldman Sachs analysts see iron ore at $62 a ton in 2017 and $47 in 2018, saying that while supply and demand may be relatively balanced next year, the price could “fall toward the marginal cost of production in 2018 as supply outpaces demand”.

Reporting by Manolo Serapio Jr.; Editing by Joseph Radford