Iron Ore Miners Face ‘Breaking Point’ If Prices Fall to $30

The iron-ore industry will face a “breaking point” if output continues to climb and prices are driven below $30 a metric ton, according to Bloomberg Intelligence.

That’s the level where many of the world’s biggest producers would be at or below cost and forced to shut mines, according to Kenneth Hoffman, an analyst at Bloomberg Intelligence in Skillman, New Jersey. It’s about 44 percent lower than current levels.

The largest producers including BHP Billiton Ltd. and Rio Tinto Group are increasing supply in an effort to lower their average costs. That’s creating a global glut and pulled down prices 53 percent in the past 12 months. Seaborne iron-ore supply will exceed demand by 129.3 million tons in 2017, up from an estimated oversupply of 55 million tons this year, according to Morgan Stanley.

“Miners are saying they will ramp up production as much as possible to lower their overall unit costs, which will likely continue to force prices significantly lower until they reach a breaking point,” Hoffman said Friday in a report.

The average standardized operating costs for the four largest producers in 2014 was $38.52 a ton, according to Hoffman.

Iron ore at the Chinese port of Qingdao fell 4 percent to $53.14 a ton on Friday, according to Metal Bulletin Ltd. data.

Both BHP and Rio Tinto have defended their production strategy, insisting that any move to cut volumes would simply prompt rivals to raise output and gain market share. While the chairman of Fortescue Metals Group Ltd. this month called for the biggest producers to cap output to boost prices, Rio Tinto Chief Executive Officer Sam Walsh on Thursday dismissed the idea as “absolute nonsense.”

“It won’t help us in the longer term to prop up projects that are actually not competitive,” Walsh said.

Before it's here, it's on the Bloomberg Terminal.