MGX (ASX) Next Mining Boom Coming

Originally posted by Mongrel ↑

$15/t IO will never happen ("never" omitting Armageddon, etc).

This is what the iron ore cost curve looks like (that is, cumulative tonnes produced at their production costs (in this case, delivered cost (CFR) into China):
View attachment 745023
This particular one shows the actual 2013 cost curve (at rear) with the 2018 planned cost curve (front). The different colours represent different countries (Aust is in green, China in red). A couple of things to note:

Where total production meets total demand is about where the current spot price is (these curves don't show total demand). On the current curve it sits at about $75 - $80/t. Note that most of China's production sits above this price, but there are reasons why that's allowed/sustainable.

Excess production at the lower end or, conversely, reduced demand, will shift the curve to the right and will put the high cost producers into a loss making scenario. That is, the higher cost producers will be producing excess tonnes at a cost above the sustainable spot price. This is why Twiggy bitches about Rio and BHP expanding their production (like he hasn't!)

Spot price cant sustainably fall below the price of inherent demand as supplied by the marginal producer. For example, if the spot price is $80/t and not enough producers can supply profitably at $80/t in spite of demand, the spot price will increase to meet that supply cost.

A price of $15/t will see ALL producers become unprofitable. Whilst they can sustain that for a quarter or so, eventually so much supply will drop out of the market that demand will exceed supply and the price will re-adjust back upwards (that's why I refer to a "sustainable" spot price - high price volatility can, of course, produce a spot price below the cost of supply, but that situation cannot exist for long).

For example, if the spot price fell long term to, say, $20/t, only about 100Mt of supply would wash its face, leaving the other circa 2billion tonnes of demand unfilled as those suppliers would just stop producing (eventually).

The iron cost curve changes on an almost daily basis as, of course, does global demand.

The marginal producer (at or near the spot price/total demand-supply equilibrium) is a price taker and must be nimble to stay in business. The likes of Atlas and the huge army of small producers that have stretched out the above curves from 2013 to 2018 dance to the tune of this cost curve.

The producers at the left side of the curve (ie, low cost producers: Rio, BHP, Vale) can be smug in knowing that a huge tonnage must come out of production before any IOP reduction affects them.

These curves show why, when the IOP fell below $40/t, it just HAD to go back up, as it did. The only question was: how long could the producers sustain sub $40/t before closing down and restricting supply?

Expand

Never happen? This is the same sentiment as every other boom bust cycle/ bubble. 'Prices have reached a permanently high plateu' prices were $15 or less for more than 30 years, its not just possible it will happen, its likely that it will. There were still I/O suppliers at $15 for that long.. It's only 10 years ago that prices were at those levels

No.	Vol.	Price($)
13	127764	29.0¢

No.

Vol.

Price($)

127764

29.0¢

Price($)	Vol.	No.
30.0¢	302574	6

Price($)

Vol.

No.

30.0¢

302574

No.	Vol.	Price($)
1	37120	0.920
3	45770	0.915
3	31253	0.910
3	68342	0.905
2	44392	0.900

No.

Vol.

Price($)

37120

0.920

45770

0.915

31253

0.910

68342

0.905

44392

0.900

Price($)	Vol.	No.
0.925	15328	2
0.930	89494	6
0.935	70442	3
0.940	72592	7
0.945	128342	5

Price($)

Vol.

No.

0.925

15328

0.930

89494

0.935

70442

0.940

72592

0.945

128342

(20min delay)
Last 29.5¢		Change -0.005(1.67%)		Mkt cap ! $365.5M

Open	High	Low	Value	Volume
29.5¢	30.0¢	29.0¢	$350.5K	1.189M

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