Gassin, if the iron ore stockpile fell (from 113 to 105 Mt) then the iron ore market is not flooded.
If the demand is there somebody has to produce it.
The price for commodities is such that with Iron Ore at $50/t the big aussie miners will make 100%+ margin for their efforts. In anybodys books thats a good business and they have the volume to maintain profit. If demand is stronger then price may rise and they will make super profits but this is a chicken and egg situation where some steel makers will take advantage of low ore price to maximise throughput so they can reduce buying when price returns to long term average.
In such a market would you invest billions into a new mining venture which had high costs > $50/t?
BHP long ago recognised that the iron ore market was overheated because the long term demand is just not there to justify the price , starting up new mines with very high costs when the competition has very low costs is brave (very high risk). There is enough low cost competition (RIO and Vale) to satisfy the 95-100% of the current damand.
Knowing this, any thinking business will structure their operations to optimise profit based on their logical assumptions and best understanding. For high cost operators they can only make hay when the sun shines. For BHP and RIO the sun will always shine because they have lowest cost operations they will be the last to become unprofitable and if they put their mines into care and maintenance then the Iron ore price would jump instantly to very high levels - i.e. it isn't going to happen from a market mechanism but there is a political risk.
Very long term the main (catastrophic?) threat to our exports is sanctions against China in the event of a military move on Taiwan (forced re-unification) . I dont think there is any immediate danger of this and hopefully it will be a willing transition someday but China is building its military along with its economy and as we have seen with Japan and the islands the Chinese government is still coming to terms with its transition to superpower status.
All in all BHP is still the best place to be in terms of Iron Ore, the 2nd and 3rd tier miners will always carry higher risk profiles and from time to time investors in those operations will need to time their exit to avoid getting burnt.
AGO Price at posting:
15.0¢ Sentiment: None Disclosure: Not Held
BCI Price at posting:
48.5¢ Sentiment: None Disclosure: Not Held
FMG Price at posting:
$2.55 Sentiment: None Disclosure: Not Held
GRR Price at posting:
10.5¢ Sentiment: None Disclosure: Not Held
MGX Price at posting:
25.0¢ Sentiment: None Disclosure: Not Held
RIO Price at posting:
$56.29 Sentiment: None Disclosure: Not Held
AJM Price at posting:
5.1¢ Sentiment: None Disclosure: Not Held
BHP Price at posting:
$28.98 Sentiment: Buy Disclosure: Held
