Iron ore reaching its floor?

Insider sources (BHP) suggest both they and Rio have planned for a US$55/t IOP for some time. Looks like its getting there. The good news is that, at this price, many of the junior high cost producers in Oz, as well as a whole bunch of chinese domestic producers (let alone the low quality Indon, Iranian, and "stan" producers), will either shut down, or use up their retained profits to tide them over until the price increases again (eg, AGO). The latter scenario really is a gambler's ruin one. Most of the Oz producers only get about 80% of the spot, so even a weaker A$ will not help them. If price weakness lasted only a month or so, they could actually survive. However, according to Rio's Harding, the expected peak in oversupply (c350 mt per year) will really kick in when Roy Hill comes on stream, putting a time scale of at least 18 months on the depressed prices.

Interestingly, IOP are expected to rebound to at or above the US$70/t mark, so any resource going into development now, or in the near future, would likely hit a pricing sweet spot on start-up. Of course, raising the capital in this environment is a big ask, so what will actually happen is that high cost producers will exit the market with little production expansion in place to cover the inevitable supply shortfall around 2018. The wild gyrations in commodity prices will continue!